Investing in the Family.
Shortly before my father died, at the age of 80, I asked him why he and my mother had decided to up-root the family and move with their four sons to Canada from Edinburgh. His response was immediate, if he didn’t do it two sons would make the move and he didn’t want the family separated. My father was in his mid-fifties when we came to Canada, he was over sixty when we finally found our place in our adopted land. When he died he had a net worth of about $5,000.
My father didn’t invest in pensions or retirement savings or even life insurance, he did invest in four sons (all successful in their own right) and he took action when he recognized the improved opportunity they would have in this new land. Since I had that conversation with Dad, studies of successful business families have shown that he shared the same “family first” sentiment with most wealthy families. When wealthy family patriarchs and matriarchs were shown the distinction between:
- social capital, (the relationships between individual members of the family
and between members and the community),
- intellectual capital (the wisdom held within the members of the family)
- physical capital (property and financial assets)
and then asked if you could only choose two of the three to transfer to the next generation which two would you transfer, they invariably selected social and intellectual capital, reasoning that if you can transfer those two physical capital will happen.
On reflection it makes sense. If you have wealth associated by physical assets and intellectual capital but no strength in relationships, no connectedness, the importance of the wealth will be lost and the physical capital will start to atrophy. If you have physical capital and social capital but no wisdom the wealth may atrophy even faster.
When family businesses have a competitive edge, it is achieved through the family working together, occasionally sacrificing market level wages when there is a need to conserve capital in the business and working the hours required to achieve goals. It is the acknowledgement and valuing of the social and intellectual capital that allows family businesses to survive and prosper through “thick and thin.” Once we recognize this, the family will identify the importance of transitioning social and intellectual capital as well as physical assets and the prospects of a effective succession will be enhanced.