7 Essentials for Family Business Leaders to Build a Lasting Legacy
Nov 05, 2024
Family-owned business leaders, who are responsible for nearly 70% of our GDP, face a unique set of challenges as they plan for future generations. Financial and legal expertise alone is necessary, but it is NOT sufficient. A holistic approach—one that combines multidisciplinary advisors, thoughtful succession planning, and proactive Next-Gen development—is critical. That holistic approach is the ONLY winning formula for legacy building. So, let’s break it down into the essential ingredients.
Here are the seven essentials every family business leader should consider to thrive across generations.
1. Clarify the Roles of Key Players
Family businesses succeed when three sets of leaders collaborate:
- Owners: The strategic decision-makers who are responsible for long-term vision and investments.
- Next Gen Leaders: The future leaders, in their 20s or 50s, who always need clarity to fulfill their roles.
- Multidisciplinary Advisors: Financial, legal, insurance, and psychological experts who bring specialized guidance. Ideally, they work together as a cohesive, multidisciplinary team. I often serve as the quarterback.
These roles are ancient. And they are critical. These roles cannot be minimized or avoided. Everyone in the business needs to clearly understand their “swim lane”- their function and value. And they each need to stay in that swim lane! Otherwise, the family leaders will feel chaos, conflict, and conflict- which could have been avoided with better role clarity.
2. Develop Next Gen Leaders
Next Gen leaders need to understand their role within 1) the family, 2) the business, and 3) the potential legacy. At a recent session a client stated, “I like the sound of a family dynasty. But frankly it seems impossible.”
Next Gen leaders always question if they truly belong, especially if they joined through marriage or face complicated family dynamics. Many Next Gen leaders feel anxiety, loneliness or self-doubt… and optimism. Just like leaders at any age or stage in their careers!
To support these future leaders, we developed these resources:
- Next Gen Peer Groups: Structured peer environments where Family and Non-Family Business leaders can share experiences, expert practices, and gain clarity.
- 360 Assessments: Tools that provide insights into behaviors and skills, offering a roadmap for growth and development. These are the most effective feedback tools for any leader, and can accelerate succession planning.
Please don’t wait to invest in your Next Gen leaders! The 4th quarter is a perfect time to invest in them. They deserve it. And owners deserve to plant a better garden for their future… Just imagine that future garden with a house that holds 3-4 generations of leaders, celebrating a wedding or a graduation. Or a big investment return. There is no better investment. Many of my clients are sitting on cash and choosing to invest in their leaders in this fourth quarter, so that they can see returns in 2025 and beyond.
3. Assemble a Multidisciplinary Advisory Team
Traditionally, family business advisors focus on wealth maximization and legal safeguards. Those are necessary advisors. However, successful legacy planning requires more. Estate planners and wealth advisors are well intentioned, but unqualified to manage the psychological needs of family members when discussing a wealth transfer. Those family leaders need an expert business psychologist. That’s my swim lane. I focus on the “People Side of Wealth Transfer.” I help leaders deal with those owners who prefer to disagree, attempt to block an asset transfer, or threaten to leave a family meeting.
I recently worked with a multi-family office where financial advisors handle the investment needs of about 80 families. I don’t provide financial advice- but I love to partner with financial advisors. One reason for adding a business psychologist to your team is to address family conflicts and any obstacles to succession planning. People are complex. Families are infinitely complex. The power of an interdisciplinary team of advisors cannot be minimized. It’s hard for advisors to “sing from the same page” as if huddled around one piece of paper… but they can do so. And the results can be a beautiful 4-part harmony.
4. Invest in Financial Literacy for the Next Generation
One of the most practical ways to set up Next Gen leaders for success is to improve their financial literacy. That’s an endless process. When they were young children, most parents established a system with three jars to allocate assets from their allowance. ⅓ went to savings. ⅓ went to savings. And ⅓ went to spending. When they had more assets to manage, those jars morphed into asset classes. And the smartest Next Gen leaders learned to ask for financial advice from trusted elders. That’s an ancient, endless process.
I often facilitate family meetings with financial advisors, Elders, and Next Gens. I encourage Next Gens to develop and argue investment cases such as a hypothetical $100,000 asset. Case studies are the best form of learning for adults in MBA programs and those in family meetings, because they require contributions from different perspectives. Next Gen leaders are eager to learn about investment strategy, risk management, and aligning with the family’s financial values. They often need to be encouraged to ask questions.
When they invest in ways that make their Elders smile, then the family legacy is likely to continue for generations. I’ve never met a family leader who didn’t smile when their children or grandchildren made a prudent financial investment, or demonstrated stewardship. Those are teachable skills!
5. Draft a Succession Plan
When building a house, or re-designing the kitchen, we start with a plan. Then we find the expert subcontractors. Then we agree to a timeline. Then we build the house or that beautiful new kitchen.
Same with a succession plan. It’s not necessarily a complicated process. Most owners with assets have a living will and letter of intent to transfer assets. Most owners with assets have trusted legal and financial advisors. The succession plan can be as simple as a drafted design, stored in a safe-deposit box or with those trusted advisors. The essential step is to declare your intentions and share those intentions with your loved ones. It may be a paragraph. And it may become a multi-page, multi-year process of distributing assets. The main point here is to start designing the house, or that new kitchen.
When I facilitate succession plans I typically start with a discovery process that includes listing family families, shared assets, private assets, key contacts, and the Elder’s intentions. If ownership or governance needs require something more complex, then we work with the succession advisor team to support the plan.
One of my clients wanted to develop their succession plan before Christmas, so that the Elders could share the details at Christmas in an informal family meeting, as a gift. It can be a simple, joyful process.
6. Prioritize Family Capital
There are many forms of capital (financial, human, social, psychological). I define family capital as the durable bonds that unite or describe a family. Open communication, laughter, story telling, unsolicited gift giving, and celebrations are examples of family capital. Those can be measured, of course. But why do so?
The point is to determine HOW your family determines those durable family ties. Then to spend more time doing those activities. Laughter is a measure of family capital. So is family philanthropy. So is supporting that family member with different political views or social ties or chemical addictions or mental health needs… One of the most positive applications of psychology research in the last 20+ years is applied psychology. We now expect those with mental health needs to work with an expert.
Family wealth is an asset to be measured and increased. The process includes assessment and recommendations from expert business psychologists. Typically, I start with an understanding of shared values, family history, conflict dynamics, and shared physical assets. Then we develop an asset map and design the future. No asset is more exciting than hope for a better future!
7. Embrace Change
One of the most influential thinkers alive today is Peter Diamandis, founder of the XPrize and author of Abundance; The Future is Better Than You Think (2012). He recently shared this quotation about change. "It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change." Leon C. Megginson, Professor of Management and Marketing
(Often misattributed to Darwin, this is Megginson's brilliant business adaptation of Darwin's concept).
Psychologists call it “learning agility”- our capacity to adapt to change. There is plenty of discussion about the largest wealth transfer in human history- at least $80 trillion USD in the next decade. I’d love to assume that most of my future clients will adopt a succession plan with multidisciplinary teams of advisors that increases family wealth.
And I’d love to assume that those who make The Giving Pledge to donate significant assets will one day do so. But the fact is that most of those pledged assets have not yet been distributed. Why not?
We resist change, especially the fear of loss.
Our ancestral roots, in the savannah grasslands with countless threats, enabled those who adapted to change with the capacity to survive. The same pattern persists today. Wealth innovators are on the fringes of changes, not the leaders of new changes. That’s why I love to work with family business leaders. They embrace changes and adapt to market needs faster than leaders at publicly-traded companies. And they act with more long term assets in mind. So, I’d like to assume that family business leaders demonstrate more learning agility than others.
Resilience can be measured and taught. (Perhaps that is the topic for another post.)
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