Family and Wealth: Mind the Generational Gap

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Alfonso Baigorri: Welcome to our Wealth Advisory Series, where we discuss topics related to Life and Legacy. Today, we are going to talk about starting your own conversation in the family between different generations regarding your family enterprise and the family’s wealth.

Alfonso: I am Alfonso Baigorri, and am joined by my colleague Mariana Brandao de Souza. 

Mariana Brandao de Souza: Alfonso and I work in the International Private Bank. We speak with clients about strategies to hold and transfer wealth across generations.

But probably most important for today’s topic, I’m a GenZer, also known as a “90’s baby.”

Alfonso: And I am a Gen Xer, “from the 1960s.”

Mariana: So our views and perspectives are as different as those of you and your children and grandchildren.  

Alfonso: Mariana, why is it important to start a dialogue among the different generations?

Mariana: Thanks, Alfonso. I think we can all say from personal experience that within each family, you can find a wide variety of personalities, interests and opinions. It is natural for family members to have different roles and perspectives about their family’s wealth. When these differences are understood and discussed by the family members, they can be a source of unity, a basic block for the construction of strong and efficient decision-making structures, and a great tool to manage conflict. This is especially relevant for people my age. In my mind, the real question we should be asking is, how can we start a dialogue among the different generations?

Alfonso: One way to get people talking is by sharing the stories of other families in business, and introducing a topic that could be explained in the context of these stories. When we help a family structure a meeting of this sort, we sometimes suggest sharing two different stories. For example: one where the family successfully sustained the same business across generations, and another one where the family successfully sustained their wealth by selling their existing business and starting a new one at every generational change.  

Mariana: That’s a great way to start brainstorming ideas. How would you work it into the conversations?

Alfonso: To introduce a topic, say stewardship, you can start by stating a common definition such as “a good steward views the family businesses and wealth as an opportunity to create value for the benefit of future generations and not as an opportunity to build one’s personal wealth,” and asking the participants what do they think that means. You can steer the conversation back to the stories of the other families and ask which one do you think was then a better steward. 

Mariana: Definitely! When it’s raised, families typically realize that businesses and investments can come and go. While stewardship focuses on the family, their assets and values. It is a broad enough topic to ignite conversations around the family history, and to reveal each individual’s personal views and opinions. This reflection can often uncover how the family members understand entrepreneurship, social causes, and even get them to share their thoughts and goals around their family’s enterprise or wealth.

Alfonso: Exactly! Precisely because of these type of triggers, having conversations around stewardship is a great way to get to know each other’s expectations, wishes and aspirations. These conversations usually lead to a higher degree of trust among the current and the future stakeholders.  

Mariana: That’s right. For the younger members of a family, is a great gateway to reintroduce ourselves and bring up fresh ideas and perspectives. In the end, these exercises are all about trust. The more the current stakeholders trust the future stakeholders, the more receptive they will be to their ideas and their involvement in the family’s businesses. 

Alfonso: And these roles do not change overnight. It is all part of a process that takes time.

Mariana: For sure… Alfonso, what other topics can be raised to increase the level of trust among the generations?

Alfonso: Well, I would say the development of “human capital” is a topic that resonates with most people. In the family business context, “human capital” is typically provided by the family itself, but many successful families have often incorporated people from outside the family. To accomplish anything, families must invest in the people that work in the family enterprise or manage the family’s wealth.     

Mariana: From the perspective of the younger generations, it is so much more than academic education. I would say the goal is to identify which new set of skills could bring value to the family’s business or wealth management.

Alfonso, how proactive should families be in identifying career aspirations of the younger members? And how can we work with them to determine if there are any opportunities?

Alfonso: This is key for the success of the next generation. I worked with a fourth-generation family member whose dream was to work in the family business. He grew up going to the factory with his grandfather, chose his major in college and his master’s degree to fit the current skill set of the enterprise, interned in the family business and got to develop close relationships with several of the non-family employees who mentored him. And then, just as he was turning 30 and getting ready to grow and acquire new responsibilities, the business was sold. This was devastating. He felt at a loss. Like the place he planned for himself in the world was no longer there. 

Mariana: I can imagine… It’s only natural to become emotionally attached to the family enterprise. I guess it can even often become part of your identity. Younger generations must be prepared for this possibility, and develop the necessary life and professional skills to thrive under changing circumstances. 

Alfonso: And that is exactly the lesson here, Mariana: Circumstances are always changing! Particularly today, the skill set needed to be good at your job, or to perform the job that will be needed tomorrow, is changing faster than ever before. On that note, Mariana, what would you say is the right age to start conversations with the younger generations?

Mariana: I think it’s never too early to start an open and honest conversation. Millennials and GenZers want to find a way to start one with your generation. Even if our views are not the same, if we start communicating, the rest will follow.

Alfonso: I couldn’t agree more. Switching gears here, technology has been key in shaping your understanding of the world.

Mariana: Definitely! Millennials and GenZers grew up with the latest technological trends and developments. A great example of this is our approach to spending money. GenZers typically prefer contactless payments and peer-to-peer apps to actually having cash in hand. Over 75% of GenZers report using digital payment apps on a monthly basis. I haven’t been to an ATM in over a year!

Alfonso: Probably most shocking for us GenXers, is that only one-in-three GenZers have used a paper check! Your voice can no doubt help modernize and strengthen any family business. Mariana, do you remember when we discussed the family in the textile business? Many years ago, the oldest generation of the family allowed their youngest member to attempt selling their products online, as an experiment. Today, over half of the business revenue comes from online sales! 

Mariana: Wow! I guess looking back it’s easy to identify their path to success. But back then, the skills brought forward by the Millennials were not immediately recognized. At the risk of sounding overconfident, I think GenZers are going to be very well prepared to face the challenges of tomorrow! As the most studied generation ever, we are described as digital natives with a unique skill set, interconnected and empathetic. As we were born into social media, our generation often embodies a strong entrepreneurial spirit, and a heightened interest for social causes.

Alfonso: That sounds right. I have two GenZers at home, so I hear you. You are also not shy to voice the value you bring to the table. And good for you! 

Mariana: Thank you, Alfonso! But you know, some of these values come from those who raised us. And part of our development is learning how to make decisions and acting within the boundaries of those values. You recently were sharing a story that serves as a great example.

Alfonso: Yes, that’s right. We worked with a family that were industry leaders in their country of origin. The third generation, mostly Millennials, were leading the family enterprise and managing the family’s wealth. They engaged in a year-long project to have an outside consultant conduct a detailed study on how they could improve their revenues, minimize their taxes, and globalize their operations and lines of distribution. At the end, the consultancy firm recommended a number of steps which would have achieved all of the above but would have meant the loss of employment of a significant amount of people in their local community where their main operations are located. 

Mariana: So what did they do?

Alfonso: Well, taking the longer view, as family enterprises often do, they had a second round of consultants come and work out a plan where they would keep most of the existing local operations and achieve everything they set out to achieve with additional capital inflows. It was going to take much longer to reach a “break-even” point, but sustaining their employees and local community was part of their vision for their business.  

Mariana: I remember this! They also took advantage of this opportunity to create a new entrepreneurship program for the younger members of the family and employees.  

Alfonso: Yes! There were so many development opportunities for all stakeholders coming out of this strategic move, both family and non-family!   

Mariana: So true! Social entrepreneurship is not only good for business, but it also goes back to the question of trust. Family businesses are the most trusted form of business globally. This is important because as a business, you want the public to trust in your company, but also because employees want to work for companies that have strong values, and want to see those values appreciated and acted upon by their leaders.   

Alfonso, I believe we are almost out of time. What take-aways can we leave our listeners with? 

Alfonso: Like in most things in life, having a conversation around the family enterprise or the family’s wealth does not have a “one-size-fits-all” format. I would leave you with three take-aways: First, make family communication a priority, especially among the different generations; second, provide a safe space to talk, whether in person or through an app; and third, put some structure around it, like basic rules of engagement and selection of stories and topics for discussion. And remember to always, always be brave and respectful!

Mariana: Thank you, Alfonso.  

To our listeners, thank you. Your Wealth Advisors are here to provide you and your family with a number of tools to help start a conversation about your family enterprise, or the family’s wealth, with members of different generations. We can work with you to discuss family governance topics, help you organize your own family meeting, provide you with relevant publications on various topics related to wealth and family, or give you access to our international network of family business consultants. We believe that this kind of thorough and thoughtful planning can help ensure the preservation of your legacy along multiple generations.  

Alfonso: That’s it for this episode. Thank you for listening to our Wealth Advisory Series on topics of life and legacy.