The Multigenerational Family Business, with Dr. Dennis Jaffe
For an intended multigenerational family business to last past the first generation, the family must become a successful team.
Professor, organizational consultant, family therapist, and family business consultant Dr. Dennis Jaffe joins us today. He has helped families overcome challenges that impede successfully transferring businesses, wealth, value, commitments, and legacies across generations.
So, if you want to create a multigenerational family enterprise… tune in now!
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Table of contents
Why Should Families Think Multi-Generationally?
[3:40] “There’s no ‘should’ about it. This is what families are concerned about—they’ve created wealth, been successful, they’ve providing for their family, they’re creating more wealth than they can use on a day-to-day basis, and they have young people growing up. And they begin to say, ‘Well, what’s going to be my legacy?’ And they begin to ask the question—not how do I get more wealth—-but what is the purpose of our wealth? What do we want to do with it?”
Dr. Jaffe has noticed that as families build wealth, they think more seriously about what that wealth will do beyond them. And this consideration is critical because it’s how wealth lasts for generations. You can’t simply build up wealth, you also have to create systems, educate your kids and grandkids, and pass on your values so that the generations beyond you will know how to be good stewards of your money.
What Can History Teach Us About the Multigenerational Family Business?
Dr. Dennis Jaffe has been in the field of family business and wealth since the early 80s. And over time, this industry has really evolved to include family meetings, family constitutions, and much more beyond just getting advice from a financial advisor. What Dr. Jaffe has done is interview and compile information from wealthy and successful families.
A successful family, as Dr. Jaffe defines it, is a family that has kept and maintained its wealth for at least three generations. After all, these are the families who have done a good job of educating the next generation on how to build and keep wealth. Successful families are also families who spend time together and have a sense of connection.
[12:10] “What I found is that these hundred-year families had a great sense of their legacy and history. They could look back for the fifth generation and say, ‘Well, you know, grandpa did this.’ Or, ‘One of the things that grandpa did that really made a difference for us is this…’”
This research proves helpful because it doesn’t suggest a singular path to wealth. Instead, it illustrates many paths and options for building and sustaining wealth. And behind it all is a sense of family history—that each generation can learn from the ones before.
When Do You Bring Kids Into the Family Business?
As important as it is to look to the past for guidance on sustaining wealth, it’s just as important to keep tabs on the future. After all, your children and your children’s children are the future of your legacy. They’re the ones who will carry the torch, so it’s important to prepare them to inherit the family’s wealth and continue that legacy.
[19:11] “So, one of the first things that I learned is that the older generation has to really listen to the next generation because they have a very unclear and unrealistic idea about the future. Because they see it from their own eyes and their own experience. They don’t really understand the experience of their kids, the people that their kids marry, and their kid’s kids. And all those people have to have a voice, and I think a lot of elder generation people don’t bring the family members in soon enough… I think it creates a problem for the family if they don’t know how to work together. They don’t talk about things. Then all of a sudden the elder is gone.”
Some parents grapple with knowing when to bring their children into the conversation and the multigenerational family business because they don’t want the children to be exposed to the more complex side of things. Yet that education and training can be critical in helping the next generation be better stewards of wealth in the future.
The Challenge of First-Generation Wealth
In particular, families with first-generation wealth have a challenge, depending on their mindset. Many of the people Dr. Jaffe’s encountered who have worked hard for their money—rather than being born to it—are independent. They pulled themselves up from the bottom, and want their children to do the same.
The issue with this is that their children are often born into wealth. They spend their whole lives benefiting from that wealth. Their clothes, their hobbies, where they attend school, who they know—all of those factors are affected by wealth. Rather than cutting them off at some point and expecting them to start from scratch, there’s an opportunity to teach them about wealth building and invite them to be a part of the family business. That way it’s practically guaranteed that your legacy can continue for more than one generation.
This is also important because it’s critical that your children and other family members know how to work together. Because eventually, the family is going to grow into different households. Your kids will branch off into their own families, and so on. They must be well-equipped to work together.
Money is a tool, like anything. And when you have it, you can use it to help your family learn to be good stewards of it for generations to come. They don’t have to reinvent the wheel in order to be successful. You just have to be thinking in terms of legacy and family wealth, as opposed to personal wealth.
What is the Best Way to Create a Multigenerational Family Business?
[29:18] “The idea is you want to create a long-term family [as opposed to a long-term business]. You want the family not to say, ‘Okay, let’s all go off. We’re all rich, let’s all have a good life [separately].’ You want there to be connection.”
Dr. Jaffe may have studied successful multigenerational family businesses, but he was not studying the businesses themselves. He was studying the families, and what they did to stay connected. Interestingly, of the successful families, many of them had sold their business by the third generation, or had pulled in a third party to lead the business. But the families themselves were still connected and were making decisions that complimented the family. In other words, what makes a multigenerational family business successful is not the business model, it’s the family model.
Connect with Dr. Dennis Jaffe
About Dr. Dennis Jaffe
Dr. Jaffe, a San Francisco-based advisor to families about family business, governance, wealth, and philanthropy, is Senior Research Fellow at Banyan Global Family Business Advisors.
He is the author of:
- Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises;
- Finding Her Voice and Leaving a Legacy;
- Cross Cultures: How Global Families Negotiate Change Across Generations;
- Stewardship in your Family Enterprise: Developing Responsible Family Leadership Across Generations and Working with the Ones You Love.
His global insights have led to teaching or consulting engagements in Asia, Europe, the Middle East, and Latin America. The Family Firm Institute awarded him the 2017 International Award for service, and in 2005, he received the Beckhard Award for service to the field. In 2020, he was awarded a special commendation as an individual thought leader in the field of wealth management by the Family Wealth Report. He has a BA degree in Philosophy, an MA in Management, and a Ph.D. in sociology, all from Yale University, and professor emeritus of organizational systems and psychology at Saybrook University in San Francisco.
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