Consider how you and your heirs will steward family wealth
The leaves are turning, and stores are decorated with colorful displays promoting Trick or Treating. Many costumed goblins and princesses this Halloween will receive candy made by one of America’s most successful family businesses: Mars. The five generations of the Mars candy empire exemplify what’s possible when families move beyond mere inheritance to intentional affinity.
Only a relative few family businesses survive into a second generation, and still fewer a third. But a handful of extraordinary family-owned businesses survive and thrive for three, four, or even more generations.
Members of these families were interviewed by researchers in the 100-Year Families Study. To qualify, they had to have successfully transitioned a major family enterprise through at least two generations. One of their most distinctive tactics was to create a family of affinity.
What is a “Family of Affinity?”
Family of affinity refers to chosen relationships that function with the emotional depth, loyalty, and mutual support traditionally associated with biological kin. In family business, they can be powerful sources of resilience and identity. “One of the principles that we have seen prove itself time and again in our work is that the families who flourish over time understand themselves as families of affinity. A family of affinity does not limit its sense of identity to blood or genetic lineage. It sees itself as linked by a common mission…” (James E. Hughes Jr., Susan E. Massenzio, and Keith Whitaker, Complete Family Wealth: Wealth as Well-Being, 2nd ed. Wiley, 2022, p. 19)
Who Even Has this Option?
Two things enable a business-owning family to realistically explore the option of creating a family of affinity.
First, it has adopted a business-first mindset. “There comes a point where the family has to decide if its priority is immediate family consumption or sustained business effectiveness. To best serve the growing family, the family must run the business in line with good business practices and not use it as an employment agency, playground, or funding source for family members. … the family has to make a choice to transition from family-first to business-first orientation.” (Dennis T. Jaffe, Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises, Wiley, 2020, p. 22)
That focused, disciplined approach enables the family to create a successful enduring business entity, and the financial rewards of business success enable them “to create a second successful entity: a connected family with shared values… These families move from being a family of inheritance to a family of affinity that shares a vision, a set of values, and a commitment to actively build something together.” (Jaffe, p. 23, emphasis in original)
Three Hurdles You Must Clear
Even if your family has adopted a business-first mindset and wants to create a connected family with shared values, you must think carefully about potential consequences before proceeding with the creation of a family of affinity.
Here are three hurdles you’ll need to clear.
Hurdle #1: Family capacity to create a shared vision, together.
What is the shared mission that will become the raison d’etre for your family of affinity? In Dr. Jaffe’s language, what is it that you will commit to actively build together? We love this question for how it points toward the pinnacle of stewardship. Your family will need to address this question together in a deliberate, inclusive, intergenerational process that celebrates your heritage, identifies undergirding values, and articulates a core purpose. This is the essential work of faithful stewardship. It might mean committing to environmental stewardship through sustainable business practices, or dedicating resources to education in underserved communities, or preserving agricultural heritage while innovating for the future.
Family Business Facilitators exists for just such work as this. We can introduce you to a variety of resources and experiences that will stimulate your collective imagination and enable you to create a purpose statement that generates excitement, motivates shared commitment, and propels you toward a flourishing future.
Hurdle #2: Departures
This is often the most challenging aspect for families. A family of affinity is not the same as blood family. Some blood relatives may not embrace the invitation to create a family of affinity. They are allowed to freely choose whether to join the family of affinity in its mission, or to remove their portion of the family wealth and go their own way.
This is an emotionally charged and financially challenging situation that must be handled with care and discernment. Typically, a family shareholder agreement will dictate the terms and conditions under which stock/shared assets may be bought and sold; that should clarify the financial implications. But the emotional aspects are significant for both the family member opting out and those who remain.
Caroline Coleman Bailey is a third-generation member of a global business family with an eighteen-year career in her family business. She pursued her own entrepreneurial spirit and founded Premier Growth, whose excellent family business assessment resources we use. She raises an important question that must be answered in situations like this: “If I leave the family business, am I leaving my family?” Family Business Facilitators can help your family address this question directly, openly, and sensitively so that everyone involved can maintain relationships while respecting boundaries. These conversations are best held proactively, during stable periods, rather than during crisis or transition when emotions run higher.
Hurdle #3: Sustained Commitment
A family of affinity is built gradually over years – even generations. Jaffe writes, “Generative families discover that having family wealth is only the beginning of a long and complex journey. Each successive generation must answer the question, “What do we want to do with the family wealth?”’ (p. 24) The current generation of leaders in your family business can lay the foundation for this work within about 2-3 years, depending on the pace you choose.
This foundation will enable you and your heirs to create policies and agreements (governance structures) that enable you to make shared decisions regarding shared assets. You will learn to respect legacy and core values while continually adapting and innovating in response to new developments inside the family and in the business environment. Eventually you may choose to invite carefully vetted nonfamily members to join the family of affinity. Some will likely embrace the opportunity. These may be married-ins, godparents, mentors, close friends, key business associates, and even trusted advisors distinguished by years of loyal service. Families of affinity are built – not inherited – through shared experience, mutual care, and chosen loyalty to defined values and common purpose.
A Focus on the Rising Generation
And because, from this perspective, you don’t own a family business but rather you borrow it from your grandchildren, you will be especially attentive to the needs and nurture of the rising generation. An excellent new resource is available to help “develop a family enterprise owner’s mindset at every age.” That’s the subtitle of Own It! By Wendy Sage-Hayward, Gaia Marchisio, and Barbara Dartt (Palgrave, 2022). Business learning at each stage of development has a special place in business families in general, and it is essential to the success of a family of affinity.
“We define a Learning Family as a group of family members who are passionate about their jointly held (current or future) assets, and collaborate to actively build an owner’s mindset and skillset to enhance their family’s capitals (spiritual, financial, human, social, and intellectual).” (p. 207) This is a continuous, proactive process of using a portion of the family’s financial capital to develop its nonfinancial capitals, with the goal of promoting human flourishing among family members, employees, and customers, as well as the broader community through commerce and philanthropy.
Getting Started
Creating a family of affinity is not right for everybody, such as those in first-generation wealth creation mode or families in which embittered factions make collaboration impossible. But if you’re interested in learning more, here are a few first steps you can take on the journey to explore creating a family of affinity:
- Conduct a family readiness assessment
- Host initial family conversations about values and vision
- Establish regular family meetings or retreats
Conclusion
Families doing this vital work often say they wish they’d started the conversation sooner. The best time to begin building a family of affinity is during periods of stability and success, when you have the emotional and financial resources to invest in this important work. To begin exploring what might be possible for your family, contact us today. Begin a transformational journey through which your family business becomes a thriving, resilient multigenerational family enterprise led by people responsibly stewarding their capital in all its forms for generations to come.
