Lessons In Governance

Understanding how families build their capacity to make informed, effective decisions that can help guide the successful transfer and sustainability of wealth across generations.

Authored by the Merrill Center for Family WealthTM


1. About the Paper

A great deal of attention has been given to families that have succeeded in transitioning wealth from one generation to the next. In an ongoing study led by co-author Dr. Dennis Jaffe of Wise Counsel Research, we have uncovered many of the patterns adopted by these families. The research paper (co-sponsored by the Center for Family WealthTM and Merrill’s Family Office Services, February 2017) is based on interviews with nearly 80 families across 20 countries, from the third (G3) to the eighth (G8) generations, with an average family net worth of nearly $500 million. This group of successful “generative families” achieved tremendous financial success while adapting to changes in their families and retaining a shared family identity.1

What enables some families to achieve long-term sustainability and success?

This article highlights the key takeaways from Dr. Jaffe’s latest research and draws on a collection of experiences working with hundreds of multigenerational families, including a large number of first- (G1) and second-generation (G2) families, to explore what enables these early stage families to achieve this level of long-term sustainability and success enjoyed by the families in Dr. Jaffe’s study. These families have progressed from learning to developing to evolving over time, and we explore the key features of their paths.

It is important to acknowledge that generational transitions are fraught with complexity. It is at these points of transition that families can be most fragile and at risk. As transitions are completed, the family settles into a new status quo that tends to continue in relative stability until the next transition. At the beginning of transitions, however, the waters can be quite choppy. Family dynamics often engender a great deal of anxiety. Issues of control, love, personality, fairness, differing perspectives, varied levels of commitment and divergent values create a complex brew that family members must effectively address if they are going to be successful. Families navigating these transitions often face what some have referred to as the “cauldron of change”2—a progression of stages seen in both personal and collective transitions.

First-generation family leaders frequently underestimate the complexity involved in generational transitions.

We find that first-generation family leaders frequently underestimate the complexity involved in generational transitions. They are often the first to recognize that a transition is coming and they hope to prepare their families for that phase of life. Their first instinct is often to try to “manage” the transition. It is common for first-generation leaders, together with their advisors, to create legal structures that they believe will help the family cope with the complicated transition of wealth. Family members may assume that these structures alone will be sufficient enough to organize and smooth the impending transition. However, they often underestimate the impact of these legal structures on the personal and collective dynamics of the family —in other words, the family culture. If established without regard to the motivations and capacities of the family members, these structures are susceptible to systemic failure. For example, family members may pass on businesses to people who lack an understanding of the roles of ownership, management and governance. They may create foundations that their children are neither committed to nor capable of running well. They might also establish trusts for beneficiaries who are unaware of the responsibilities that such a role entails and who lack experience in dealing with a trustee when asking for funds. What these families often discover is that their family culture eats these presumably “fail-safe” structures for lunch.

Some of the more advanced first-generation family leaders will attempt to organize the family for transition. They intuitively recognize that the estate planning structures, while necessary, are not sufficient to ensure a smooth transition. Thus, they will attempt to define the goals for the transition and engage other family members. While these attempts for organization are well intended, they often come across as one-way communication. First-generation family leaders define their own visions and outline what they see as the ideal terms and conditions for the transition, and other members’ access to and use of wealth.3

Attempts to organize family members for the transferring of wealth can generate pushback among members, which can hinder or thwart goals.

Even with family involvement and communication, these attempts to organize frequently generate pockets of pushback among the family members, which can hinder or thwart the first generation’s goals. Some may voice objections to the plans and structures they are being asked to accept and support. In other cases, the resistance is more passive—family members claim to be too busy to contribute, or they offer a seemingly endless stream of small criticisms and objections. In the end, there is too little “buy-in” to make real headway. As this resistance becomes evident to the family system, frustration sets in and communication breaks down. Follow-through trickles to a point of nonexistence. As the family reaches the nadir of this process, the family either falls apart (by drift or open conflict) or begins to determine what is necessary to move through the transition successfully.

So what is the recipe that allows some families to effectively navigate through generational transitions? Based on our collective research and experience, it is the combination of a handful of ingredients that increases the probability of success, specifically:

  • Attention and awareness of the existing family patterns: The family spends time examining what is working and what isn’t. This period of observation can allow families to identify key patterns in how family members interact and communicate with one another, how their values drive their actions, how they make decisions, what may contribute to procrastination or action, and so forth. As C. Otto Scharmer, a senior lecturer at MIT and organizational expert, notes, “The way we pay attention to a situation, individually and collectively, determines the path the system takes and how it emerges.”4 This initial step can help the family see itself as a complex, interlocking system where it opens its collective mind as it begins to dive into the change process. For most families, this level of self-diagnosis can be uncomfortable at first, as it tends to expose some pre-existing biases and anxieties. That said, there are facilitative techniques to help improve the process and, with thoughtful handling, this exercise can be a liberating experience of deeper honesty and authenticity.
  • Willingness to face challenges and gaps: It is important for the family to look honestly at the differences that exist, and explore the corresponding challenges to overcome them. Gaps are often the “elephants in the room.” These can be seen as contradictions—gaps between what we do and say, what we feel and say, what we say informally and formally, what we know is right and how we actually behave. When directly faced, these gaps can become opportunities for personal and collective growth, and for building resilience. Facing these gaps routinely gives rise to a culture in which family members feel increasingly comfortable openly addressing these types of challenges.
  • Focus on defining the possibilities for the family as a whole in connection with the family enterprise: As the family begins to understand its own patterns, it can begin to gain a sense of what is possible. Family members can begin to explore how today’s decisions may affect what the family will look like 10, 15 or 20 years down the road in regard to sustaining wealth, managing assets and communicating as a group.
  • Commitment to learning: Throughout the process, the family is learning and redefining success. It is shifting the way it makes decisions, and it is learning new skills. Some of those skills involve communicating more effectively and building trust, while others focus on financial, wealth, business, philanthropic and governance literacy. Of course, families will have to choose a direction and a vision, but by engaging in the type of process described above, the outcomes can be better defined, better understood and more widely adopted in the family system. By focusing on learning, the family can gain deeper appreciation for its members and allow its plans to adapt to changing circumstances.
It is important for the family to look honestly at differences that exist between members, and explore the challenges to overcome them.

2: Patterns and Frameworks

One unifying link among the ingredients for successfully navigating generational transitions is the inclusion of elements of solid family governance, comprised of relevant structures and mechanisms to institute change and foster communication. As Dr. Jaffe notes in the latest research, “Family governance is a blend of need, opportunity and possibility. It is a source of value to the family, helping them define and organize how they use their many family resources to serve each other, those affected by their family businesses and investments, and the wide community.” Put simply, family governance is the what and how a family organizes itself to deliberate and make decisions.


Elder Generation Activities:

  • Teach and model responsibility
  • Set vision of family continuity
  • Develop capability by active mentoring
  • Create climate for family learning
  • Provide emotional leadership and support
  • Invite to participate
Younger Generation Activities:

  • Become active seekers
  • Commit to learning and development
  • Become champions of change
  • Exercise free choice to leave or stay
  • Respond to invitation

Dr. Jaffe delineates the successful governance structures of families that have survived for multiple generations. Understanding these mature governance structures is also useful for families who are just starting to build their governance, or the structures/mechanisms for deliberation and decision-making. Each family in Dr. Jaffe’s study evolved along a unique path—they all had different challenges and events to contend with—and yet they ended up with similar structures. They weren’t scaling the same mountain, but it turns out that the summits are far more alike than different. Understanding this endpoint is useful to families as they start out because each of these structures finds its roots in common patterns. Nurturing those patterns in the first and second generations increases the chance of success.

Family governance provides a formal “voice” to family members that gives clues to the traits they must develop to be successful.

Family governance helps define the intent of the family wealth, and it sets the norms and guidelines for those family members who want to participate in it and those family members who may choose, for example, to disengage from the family enterprise. A G1 wealth creator will not know with certainty how his/ her future G2, G3 and other remote descendants may see their role in the family and how much time and talent they may be willing to contribute. However, by establishing a governance framework, the wealth creator can empower current and future generations to understand the intent for the wealth and to have the mechanism to navigate the opportunities and challenges. Family governance in its most mature forms, as reflected in Dr. Jaffe’s research, provides a formal “voice” to family members. That degree of formality may not seem as relevant to a G1 wealth creator with three G2 children, but the underlying patterns of mutual respect, deep listening, rational process and careful deliberation give clues to the emerging family as to the traits they must develop to be successful.

There are a few main structures that have emerged as particularly useful to multigenerational families:

A. Family assembly
A gathering of the extended family, including spouses and life partners, focused on:

  • Community building
  • Business review
  • Social interaction

Even among smaller second-generation families, it can be quite common for siblings to live far away from one another due to professional commitments, interests or other factors. Thus, a family assembly, typically a once-a-year meeting, can be an important event to bring together siblings and cousins to get to know one another better and to cultivate a stronger connection to the family as a whole.

Moreover, when family members of all generations share in the ownership of a valuable family enterprise, whether a business or shared property, a family assembly can provide an opportunity to step away from day-to-day commitments in order to focus more broadly on goals. Such assemblies can also help family members to better understand each other’s motivations. As one family interviewed in the research noted, the family assembly meeting allowed them to discuss whether they still enjoyed working together and the benefits and disadvantages of continuing to work together moving forward; “We said, OK, what are we going to achieve together? We went through several different areas in terms of wealth preservation and generation to growing it into the future. We looked at roles for family and opportunities for family, and we looked at the family’s sense of identity. In each area, we identified some goals or longer-term visions of what we wanted to achieve. And we spent quite a bit of time chatting about that.”

Each family has its own unique culture, and it can sometimes be a challenge for spouses to integrate.

Lastly, the social interaction component can allow blood-line family members as well as their spouses (those who have been with the family for many years and those who recently joined) to engage with the family and form connections. This point can’t be overstated given that each family has its own unique culture, and it can sometimes be a challenge for spouses to integrate. The family assembly provides a relaxed atmosphere for family members to share and learn about the different norms, shared experiences and stories of the family, making new memories along the way. For first- and second-generation families, the germinating seed of family councils are regular gatherings where the entire family comes together for two important functions: to learn and to play.

B. Family council
A gathering of a smaller, representative group of family members working to:

  • Define the structure of the council and who should be on it
  • Commit to a few areas of focus for the family (e.g., through committees)
  • Agree on specific goals for each focus area
  • Develop a plan to implement the goals and coordinate with the broader family
  • Define what a successful outcome looks like

The family council can be thought of as the “executive” committee of the family assembly.5 In practical terms, the family council can have committees, which typically meet biannually or quarterly, ranging from: “family financial management” (e.g., coordinating with the family’s advisors to manage a portfolio of assets and/or strategic assets); to “philanthropy” (e.g., responsible for serving as the lead to aggregate the family’s annual giving and solicit feedback from the rest of the family); to “family learning” (e.g., developing learning opportunities for the younger generations in a family); to “family legacy” (e.g., developing a plan to interview the elder generation and capture its stories, in video or written form). Some families choose to enact terms for serving on the broader family council and/or specific committees, to create opportunities for different family members to participate and provide input on various topics. While the focus areas and committees range in family need and interest, the critical component is that a family has a process in place to deliberate and make decisions. The importance of the family council, as the family grows in size, is underscored by Dr. Jaffe’s 2013 research, which revealed that by the fifth generation, 100% of the “generative families” had a family council in place.6

Some families enact terms for serving on the family council to create opportunities for other members to participate and provide input.

As the council members do their work, they must think carefully about how the goals and plans they develop will be integrated into the life of the broader family. Often there is a good bit of experimentation with methods of communication and the development of processes for rolling out new initiatives. While the vast majority of what a family council does will be noncontroversial, they will use the family assembly to determine solutions when they run into issues that uncover conflict. When something rises to the level of an assembly decision, the family council must work to ensure real transparency, broad participation and fair process. As one family interviewed looked back on the council they had established in 2004, they noted that the council “has a role regarding the family heritage assets, engagement and education, and so there are several work streams being progressed by family members at any given time. A big part of its role is as a representative body of the wider family. Members are expected and encouraged to keep those communication channels open. If anything, it increases and encourages interpersonal family relationships.”

For first- and second-generation families, the family council may take the form of a family meeting. But it is a family meeting with a “twist”—rather than focusing on decision-making (outcome-driven), it focuses on the process of deliberating together to come to thoughtful and powerful agreements (outcome- and process-oriented). Moreover, rather than inviting the entire family to participate, many first- and second-generation families only invite the adult family members, defined as those 18 or 21 years old and above, for example (identifying a specific age provides transparency to the whole family and is often an exciting milestone for younger members to look forward to). The family then takes the time to develop an agenda to address topics such as investment management overviews, education on trust and estate planning basics, philanthropy, discussion of shared property, and other appropriate subjects.

Some families develop an owners’ council comprised only of economically interested family members to make the decisions.

C. Owners council
Families that have flourished for multiple generations tend to have separate processes for addressing the financial life of the family. Often families have spun a tangled web with differing ownership interests across various family branches, different percentage interests in different entities, and diverse viewpoints about how to manage collectively owned assets. What families tend to discover is that it is too difficult to manage all of this if the entire family is involved in the economic decisions that affect these entities. In the end, they decide that the people who hold economic interests in the entities are the ones with the natural and legal right to make decisions. Some families will develop an owners’ council that is comprised only of economically interested family members (those with legal ownership interest), who will make the economic decisions with respect to the entities they own. When a family is functioning well, the family council and family assembly will recommend policies and practices to the ownership council that they believe will promote the family’s values, culture and good relations. Whether these are adopted and implemented is up to the owners’ council, which has the final say over the operation of their businesses.

One way this works in practice is that the family will develop an employment policy that it believes will allow the business to remain strong while promoting the cohesion of the family. The ownership council can adopt that policy, modify it or reject it for the entities it controls. It is important to note that a family may have different ownership councils depending on its entities, such as formal corporations. These will take the form of boards of directors and shareholders’ meetings. For partnerships and limited liability corporations (LLCs) or other entities, the council may be comprised of the partners or members of the entity. For first- and second-generation families, this will typically be reflected in the practice that only adult direct descendants (often owners) make business decisions, with their spouses not included in the discussions unless they have some form of equity or board position. Of course, spouses will still exert informal influence. Spouses, however, are formally integrated into decisions that affect the life of the family (which gives them a voice to recommend adoption of policies and agreements to the owners of the businesses). This level of involvement for spouses integrates them into the family while protecting the confidentiality and continuity of the family’s business interests. What is essential is that there is two-way communication among all the family stakeholders, even if they don’t have formal authority. Providing an opportunity for all of the family stakeholders to voice their perspectives and become informed is critical to the long-term sustainability of the family.

More than 80% of families surveyed have a family constitution or guiding agreement.

D. Family constitution
Often created in parallel with a family assembly and/or family council, this serves as a multigenerational document summarizing the values, expectations, activities and decision-making procedures that regulate family activities, and the use of family resources.

It is not surprising that families have embraced written documents to capture the results of their meetings, and more than 80% of families surveyed in the research noted having some type of family constitution or guiding agreement. While some may appear to be structured like legal documents, the large majority are non-binding agreements that serve as guides for family members. They typically include a few central sections:

  • The family’s vision and values—in the the broader sense as well as that of the family business, if relevant.
  • The guidelines of the family enterprises—policies for family member employment and funding new famiy ventures.
  • The legal structures of the family’s wealth—the role of grantors, trustees, beneficiaries and shareholders, as applicable.
  • The philanthropic mission of the family—any structures in place, such as donor-advised funds and family foundations, and how the family makes organization, funding and grantmaking decisions.
  • The family governance structure as a whole—the guidelines for the family assembly and/or family council, including the purpose of each, membership, voting and the education of the different generations.

While this list can feel overwhelming, particularly to the first or second generations of a family establishing its governance structure, it’s important to acknowledge that a constitution is an evolving document that builds as family members engage in relevant discussions. What’s key for the constitution, as well as for any governance mechanisms, is that it be used and remain relevant to the family. As one family member observed, the process of developing a constitution “took several years. It wasn’t a five-minute job. The process of creating it was more important than the end document. It gave people an opportunity to discuss and raise issues, and make decisions by consensus, not votes. It took a bit longer, but we got better buy-in as a result.”



Gathering of all family members Representative entity to organize and conduct shared family activities Oversight group to specify and safeguard the owners’ interests
PURPOSE Community building, legislation Organizing and overseeing family activities Defining intentions, values and overseeing assets
MEETING TIMES Annual Several times a year Quarterly or less
CONSTITUENTS All family members, inclusive Voted on or selected to represent family members Owners of family assets
ACTIVITIES Having fun together, initiating activities, defining values and policies, building relationships, education Sets up committees to organize and carry out family activities, proposes policies to assembly Appoints and oversees board of directors for family assets, defines business and financial goals, creates strategic vision

Most first- and second-generation families don’t develop constitutions, but they do develop core agreements on the principles they will operate by, the processes they will use, the policies they will follow and the practices they will adopt. These are the precursors to the fully mature constitutions most frequently found in third-, fourth-, fifth- and sixth-generation families.

3: Generational Patterns

Even well-thought-out structures for deliberation and decision-making will not amount to change without engaged family members who have the commitment and skills to use them productively. At this point, it is helpful to step back from the agreed upon machinery of deliberation and look squarely at the challenges faced by first- and second-generation families.7

A fundamental task of most families is ensuring that children become productive members of their communities.

A fundamental task of most families with children is ensuring that those children become productive members of their communities. As such, parents work toward helping their children gain a degree of independence, competence and compassion. They want to see their children develop purpose and passion. They want them to find a place for themselves in the world that will help them gain fulfillment and allow them to contribute.

In families with substantial financial resources, there are additional layers to these nearly universal goals that are not faced by merely affluent families. Assuming a high-net-worth family wants its financial wealth to benefit multiple generations, the family must cope with transitions that are particular to its family structure, its goals and the nature of its multifaceted holdings. As families traverse these generational transitions, each generation will face a signature adaptive change. While not every family will inevitably follow this pattern, the vast majority will. Each of these successive transitions requires the development of new skills, and each generational transition must transcend to include the lessons of the generation before it.

Often, the challenges each generation faces tend to have the following pattern:8

G1 Challenge: Create financial wealth
The first generation is, by definition, the wealth-creator generation. Skills that are required to generate wealth are varied, but include focus, decisiveness, calculated risk-taking and determination. Wealth creators often exhibit high levels of these traits, which fuel tremendous success and can, at times, easily dominate family interactions, whether by intention or not.

G2 Challenge: Work as a team
Once the second generation is on its own in assuming control from G1, it no longer has parental pressure to stick together. For that reason, survival requires a degree of commitment to its members, the development of mutual respect and trust, an appreciation of diverse perspectives, and the development of core skills that will allow these G2 siblings to deliberate in ways that sustain wealth. Skills include flexibility, collaboration, risk-aversion and a focus on process as well as outcome. Interestingly, the skills required to sustain wealth are often the opposite of those required to create it (see G1 challenge) and, ironically, are the ones often devalued by wealth creators.

The skills required in G2 to sustain wealth are often the opposite of those required to create it.

G3 Challenge: Grow the assets
In most families, for financial wealth to endure, it must grow in the third generation. Capital must again be put at risk and the entrepreneurial vigor of the first generation must be rekindled. Businesses mature and need renewal; and the sources of family wealth must regularly be reconsidered, especially as business realities change and family objectives shift. That said, this business development must be done with the collaborative mindsets of the second generation. Thus G3 combines the skills of G1 and G2, to begin to build an expanding family enterprise.

G4 Challenge: Establish and implement structure
As the family grows into different branches, finding ways to deliberate and make decisions becomes more complex. Family members often become numerous and spread out. Economic interests begin to vary. Family lines develop differently with diverse values and perspectives. The core challenge in G4 is establishing organizational structures that will accommodate the diffuse and varied culture of the family. Family leaders establish structures such as family councils, family assemblies, constitutions, exit agreements, policies and practices, educational opportunities and learning communities. While much of this work is prototyped in G3, it comes into its own and becomes fully operational in G4.

G5 Challenge: Expand
In G5, families typically manage broad-based enterprises that have wide-ranging business, financial and philanthropic interests. The family has many opportunities for leadership inside and outside the family. One large, multigenerational family conceptualized the practice of what they refer to as “generational harvests,” in which businesses are intentionally sold, with some of the capital distributed to family members and much of it reinvested into existing or new family-owned assets. This idea of a general harvest has been adopted by other families. By this stage, the family frequently develops strong business, civic and family leadership. To succeed in multiple generational transitions, it often has developed a process for educating the rising generation and onboarding new family members.


  • Exploring different investment opportunities: Understanding the latest options with respect to impact/socially responsible investing and sharing findings and suggestions with the broader family.9

  • Co-developing a social media policy: Sharing relevant values and guidelines around the use of social media with the family and obtaining input from different generations/ages.10

  • Engaging in grant-making processes for philanthropic donations: Researching and evaluating charitable organizations of interest, including scheduling philanthropic site visits as a family to gain firsthand experience.

It becomes apparent that this progression from one generation to the next is developmental. Consequently, it is not enough to “prepare” the rising generation; rather, it is necessary for both the leading generation(s) and the rising generation to learn and grow together. In all likelihood, the battles fought by the leading generation are the not the battles that will be faced by the rising generation. If the leading generation is going to do its job well, it must understand the challenges that the next generation will face and must be willing to adapt to help the next generation meet those challenges. In the potentially fragile moments of transition, both generations should be keenly attentive to learning, change, collective development and personal growth. By moving from a model of preparation to one of learning and then development, families can increase the probability of making each generational transition successful.

4. Characterizing Generational Skills

While the key focus areas and challenges tackled by family members in the different generations vary, our experience has shown that there are five core competencies that can help families become more informed, communicate more effectively and make better decisions. (see “The 5 Factors of Family Growth”) The core competencies play an instrumental role in engaging the rising generation by building on existing skills and experiences. This is akin to turning up a dimmer switch, versus the unrealistic expectation of flipping a switch to make the rising generation knowledgeable about investing or to integrate them into the family business. As a case in point, a young child in a family of wealth can first learn about the tenets of earning, saving, investing, spending and sharing, including practical examples that show the power of compounding (financial competency). As she practices some of these skills, she can learn more about the family’s wealth and specifically the mechanisms, like trusts, that underlie it (wealth competency). As she grows and attends annual family meetings, she can learn to deliberate and contribute to family decision-making (governance competency) in addition, if applicable, to understanding the goals and challenges of the family business (business competency) and the purpose and structures that were set up to carry out the family’s giving (philanthropic competency). While exact examples of a “learning curriculum” will vary by family depending on circumstances and focus areas (e.g., whether there is an existing family business or philanthropic entity), the opportunity to learn and gain confidence is a critical thread across families.

The 5 factors of family growth. Mastering these key areas can help ensure generational success. The first box is titled ‘Financial’ with text that reads: How money works, including earning, saving, investing, spending and sharing. The second box is titled “Wealth” with text that reads: How wealth planning works in regard to legal structures and taxes. The third box is titled “Governance” with text that reads: How to deliberate and make decisions as individual family members and/or a collective family. The fourth box is titled “Business” with text that reads: How to manage and govern an operating business. The fifth box is titled “Philanthropic” with text that reads: How to effectively give to selected causes/organizations
When the family enters the “cauldron of change,” things either fall apart or real dialogue begins, and a new status quo emerges.

According to Fabio Concesi, an international wealth strategist at Merrill, “a large number of first-generation Latin American wealth creators emigrated from Europe and the Middle East many years ago. Sharing their financial and business values and communicating them to the next generation is especially challenging when the G2 and G3 groups grow up in a different cultural environment from their parents. Addressing cultural-education challenges and defining core competencies are therefore excellent ideas to engage those families and to help them integrate their new generations into the family business.”

5. Bending the Curve

In looking at generational transitions, and particularly G1 to G2 transitions, it is useful to consider the universal patterns of change. Academics and practitioners have long noted that almost all transitions or changes follow a pattern.11This is true of those who lose loved ones, companies that undergo transitions, efforts at personal change and so on. The “curve of change” seems to be a common human pattern. While these curves of change may have different names for the markers along the journey, they follow the same overall path. In the “Typical Change Curve” illustration below, family leaders typically become aware of the impending transition of wealth from one generation to the next. Often, this generates a stage in the process known as denial. This denial comes in the form of avoidance, or more likely an attempt to plan for the transition by creating organizing structures and agreements. Trusts are established, mission statements are created, values are clarified and meetings are held. These activities are designed to align the family and prepare it for the transition. Sometimes these efforts at planning and organizing work. Often they don’t. The efforts to organize instead can lead to a period of resistance (whether active or passive). The plans are shown to be inadequate and the organizational efforts fall apart. This can lead into a period of frustration for both the leading and rising generations. The family then gets “stuck” or enters a period of overt conflict (this is what the literature refers to as the “cauldron of change”). At this point, things either fall apart or real dialogue begins, with tentative agreements, experiments and the eventual emergence of a new status quo, allowing families to collaborate effectively and accomplish what they need for a common wellbeing. Many families bring in outside advisors who are steeped in helping families through this process to ease their transition.

After working with many families, in many cases, we believe that this typical curve of change can be “bent” to avoid the deep downward dip into conflict or stagnation. This new curve begins not with organization, but with observation.12 The family takes a long, dispassionate look at itself to understand how it operates as a group. Family members consider what is working and what is not. They are invited to analyze their family system. They identify and explore the contradictory “gaps.” They examine what is really happening in the family and understand that they are indeed part of a complex system. They make the family’s culture visible to itself. In short, they do a deep dive long before they set goals, careful not to make decisions that may not have broad buy-in, or to create hard-to-change structures that may steer people into relationships they are not committed to.

In a period of “sensing,” the goal is not to force action for the sake of action, but to encourage and nurture discussion.

Once that time of deeper examination has occurred, the family engages in a period of “sensing,” or simply entertaining a wide array of possibilities, to see which plans and structure might fit the family and which won’t. By playing with various outcomes, the family broadens its horizons, surfaces possible pitfalls and thinks creatively about ideas it might not have considered if it had come to quick decisions. This form of focused brainstorming is powerful. It allows a family to discuss the assumptions each family member may have and surface solutions that resonate most deeply with the family as a whole. This part of the process is delicate; the goal is not to force action for the sake of action, but to encourage and nurture discussion around intent, connections, and shorter- and longer-term aspirations and hopes.

Next, the family is encouraged to simply “let go”—to let go of expectations and agendas, personality conflicts and preconceived notions. The purpose is not to let go of any of this permanently (that would be nearly impossible) but rather to agree to temporarily let go. This allows family members to suspend the need for action while maintaining openness to what the future might hold.13 Often, at this point, they might experience a deep pause or stillness.

The family often emerges from this point with a real clarity about what to do (whether it is to work together or even to allow their business dealings to “end well”).14 As the family moves through this point, it will typically begin to see action happen fairly quickly. The family develops a purpose and vision, maps out a provisional plan of action, and then begins to act on that plan in ways that allow it to adapt and adjust as it learns from working together. As the vision is enacted, it will often solidify into patterns and practices that will eventually become integrated as the new “world” or status quo for the family at the end of the transition.

As the family develops a purpose and enacts a vision, it will solidify into patterns and practices that will become the new status quo.

To bend the curve,—as illustrated in the “Evolved Change Curve” graphic on page 21— a number of frameworks are used to help families understand the complex dynamics they find themselves in and facilitative techniques designed to help families extricate themselves from the cauldron of change and bend the curve to a more productive approach. Tools such as Active Communication, The Big Question, Scenario Planning, Game Analysis, Behavioral Cascades, The Learning Family and other facilitative techniques may be used to help generate understanding, collaboration and forward movement for families. 

An outside facilitator can help guide your family through transitional challenges and shift your family culture.

6. Roadmap

Shifting now to practical application, often the most difficult part of the process of change is taking the first steps. There are two basic roadmaps available to help guide you through the journey. The first one involves outside facilitation. Here, you decide to bring someone in who understands how these transitions occur and who can help guide your family through the challenges it faces or that you anticipate it may face in the future. If you decide to go this route, you should interview carefully, looking for someone who is experienced at this work and has the capacity to help shift your family culture. Beware of professionals who offer to help you organize the process primarily by creating different types of documents (mission statements, values statements and the like) or who try to organize you through a singular focus on the generation of structures (e.g. trusts, foundations, etc.). The work involved in these documents and structures can be helpful, but without the proper context, it will likely not be enough without aligning the patterns of behavior and change as well. These “solutions” often fall apart under the pressures of the existing family culture. Conversely, you will want to be wary of hiring someone who is solely focused on the process. Some families hire communication facilitators/consultants who lack an understanding of the hard realities of running a business, managing wealth or making decisions. You are looking for someone with “cross-disciplinary” fluency—adept at both shifting culture and working with the structures of wealth.

Changing the family system requires a fundamental shift in perspective from G1 family leaders.

The other road is to do it yourself. Many people try this path and ultimately decide that an outside facilitator would be beneficial. It is often very difficult to change the family from within the family system. The family system will work hard to neutralize efforts that potentially destabilize existing patterns. That said, some family leaders can lead effective change. For G1 family leaders, engaging in this work requires a fundamental shift in perspective. Often, these family leaders face a challenge in giving up their strong habits of making quick decisions and taking charge. It can be useful to think of this as the family leader shifting from “quarterback” to “coach.” One family leader put it this way: “My role is to make myself essentially ’unnecessary’ to the healthy functioning of my family within five years.” For many who have been successful in business, it helps to think of this as “team building”—creating a great executive team that would be able to take over if something were to happen to its leader. By viewing the role of family leader as that of a coach and as a team-builder, the leader gains a mindset that can support long-term family success.

Once this shift occurs, it becomes a matter of fostering collaborative dialogue within the family. It is often best to start with observation—asking the family members what they can observe about how the family works. Another task to take on early in the process is having a conversation about common values; for example, the Center for Family Wealth Dynamics and Governance® deck of Value Cards helps families prioritize their financial, lifestyle, relationship and community values. While the family may agree on some common values, it is important to take things one step further by identifying core principles that the family agrees to adopt to help it grow, develop and evolve. If the family effectively works to live out its core principles, or “Values in Action”, its efforts often result in cascading effects for the family’s progress. In addition, adopting core practices—the most important of which is to gather at least once a year as a family—can help to further promote family growth. These gatherings should contain a family meeting and also be intentionally designed to develop bonding experiences.

Effective governance promotes true collaboration between family members and across generations.

7. Continue to Collaborate

Developing effective governance goes far beyond creating documents to organize the family “on paper.” Effective governance involves vigorous participation and promotes true collaboration between family members and across generations. This takes time and considerable effort. Becoming more aware of existing family patterns, acknowledging concrete challenges and gaps, defining the possibilities for the family and committing to learning, can help families sustain family wealth as well as family unity. As families move through the stages of the curve of change and adopt practices that can foster their long-term success as they navigate those stages, they will discover ways to collaborate across generations. These collaborations will involve honest, authentic dialogue that addresses both the emotional elements of family dynamics and change, as well as the critical structural elements that require thoughtful deliberation and inclusive decision-making. As families do this work together, they can develop cultures of active learning and intentional evolution. This work in the first and second generations lays the foundation necessary for families to become the authors of their own development.

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1 In the research, a “generative family” met three specific criteria: 1) Business or financial success: created a successful business or set of enterprises, with current annual revenues of more than $200 million, with the average family’s net worth more than double that (more than $400 million); 2) Adaptability over generations: successfully navigated at least two generational transitions, with control being passed to the third generation or later; 3) Shared family identity: retain a shared connection, with practices and processes that sustained their values throughout an extended family.

2 The “cauldron of change” has deep roots in Celtic myth, most notably in the myth of Ceridwin. It has ties to the broader process of change, specifically “The Process of Change: Variations on a Theme by Virginia Satir,” Stanley J. Gross, Journal of Humanistic Psychology, 1994; Cynthia Scott and Dennis Jaffe, Change Management: Leading People through Organizational Transitions, Thompson Learning, 2006; and William Bridges, Managing Transitions, Da Capo Lifelong Books, 2003.(Latest data available.)

3 A 2016 Private Wealth Management survey of 609 high-net-worth individuals revealed that 38% of wealth creators tended to dictate policies to other family members while 24% of family leaders avoided conversations about wealth altogether, and 14% of wealth creators handled all or most decisions on their own without communication. Only 22% of families took the path of sharing their differing views and participating in shaping the family’s approach to wealth. “Reframing Wealth,” Merrill Private Wealth Management. Data compiled February 2016 (Latest data available.)

4 Concepts from C. Otto Scharmer, “Uncovering the Blind Spot of Leadership,” 2008.

5 It is important to note that the family council is not charged with making business decisions, but rather makes the routine decisions related to the workings of the family. Business and economic decisions are left to the trustees, boards, shareholders and other owners of the respective businesses and are guided by the legal rights and responsibilities outlined in the relevant documents.

6 Dr. Dennis Jaffe, “Good Fortune: Building a Hundred Year Family Enterprise,” Wise Council Research, 2013 (Latest data available.)

7 For additional information, please see Dr. Dennis Jaffe’s research paper, Releasing the Potential of the Rising Generation, Wise Council Research, 2016; and the Merrill condensed and revised version, How Can We Harness the Power of the Rising Generation?, Merrill Private Wealth Management, 2016 (Latest data available.)

8 Note that the framework is a simplification. In reality, every family develops along its own path and at its own pace. The issues described may be addressed earlier or later, depending on the growth and development of the family, and the nature of the business challenges. That said, if these challenges are not addressed, the chances for failure increase substantially.

9 Responsible Growth: How Investors Are Making a Difference, Merrill, 2018.

10 Social Media and Your Family, Merrill, 2020.

11 Concepts from Dennis Jaffe, Cynthia Scott and Glenn Tobe, Rekindling Commitment: How To Revitalize Yourself, Your Work, and Your Organization, Jossey-Bass Publishers, 1994.

12 The approach outlined here is synthesis of the work of Otto Scharmer, Scott Peck, John Paul Lederach and Adam Kahane. These methods arise from tested business decision-making models (Scharmer and Kahane) and peacemaking and conflict-resolution models (Lederach, Peck and Kahane). The detailed techniques have been used in processes as diverse as Shell Oil’s strategic planning and peace efforts in Somalia, Northern Ireland and Nicaragua. For additional information, please see. C. Otto Sharmer, Theory U: Leading from the Future As It Emerges, Berrett-Koehler Publishers; 1 edition, January 1, 2009; Scott A. Peck, Different Drum: Community Making and Peace, Touchstone; 2nd Touchstone edition, May 11, 2010; John Paul Lederach, The Moral Imagination: The Art and Soul of Building Peace, Oxford University Press;

13 It is important at this stage not to get bogged down in “endless process.” The family must linger long enough in the process to build a foundation for effective collective action, but not so long as to simply spin in indecision. In a well-facilitated process, this point of stillness is usually the sign that people are ready to act.

14 By ending well, we mean that the family decides to adopt a plan to disentangle their financial lives with an aim to maintain good relationships or at least not enter into destructive conflict.

15 The ‘Typical Change Curve’ represents a synthesis of the process of change outlined in the following works: Stanley J. Gross, “The Process of Change: Variations on a Theme by Virginia Satir”, Journal of Humanistic Psychology, July 1, 1994; Cynthia Scott and Dennis Jaffe Change Management: Leading People through Organizational Transitions, Thompson Learning, 2006 and William Bridges, Managing Transitions, Da Capo Lifelong Books, 2003.

16 The ‘Evolved Changed Curve’ is based on the ideas of C. Otto Sharmer (as noted in footnote 12), For additional information, please see C. Otto Sharmer, Theory U: Leading from the Future As It Emerges, Berrett- Koehler Publishers; 1 edition, January 1, 2009; Scott A. Peck, Different Drum: Community Making and Peace, Touchstone; 2nd Touchstone edition, May 11, 2010; John Paul Lederach, The Moral Imagination: The Art and Soul of Building Peace, Oxford University Press; 1 edition, January 20, 2005; Adam Kahane, Solving Tough Problems, An Open Way of Taking, Listening and Creating New Realities, Berrett-Koehler Publishers; 2nd edition, August 1, 2007 (Latest data available.)