When a multi-million pound popstar espouses the virtues of loving your life, as Robbie Williams has done in his latest single, it might be easy to dismiss this message as the preserve of the privileged few.
But even though Mr Williams is clearly privy to a vast fortune, his message runs deeper than material wealth alone. The song I Love My Life is dedicated to his two children and encourages them to be strong, powerful and courageous; attributes that are not rooted in money.
Indeed, the wealthy perhaps more than anyone else – need to remember the importance of life beyond money, particularly if they are to overcome their specific, complex challenges in life.
While money meets immediate needs – food, shelter, warmth and so on – it may not address the deeper psychological needs, and indeed may create more complex challenges than it solves.
Nowhere is this more apparent than in tackling the 3rd generation wealth trap.
Passing the Buck: How to avoid the Generation Wealth Trap, by Simon Bloom, explores the very real and proven phenomenon that has seen the successes of the first generation’s family business, whittled away by the children and grandchildren.
In the UK family firms make up nearly 76% of the 4.6 million private sector enterprises and nearly half of all mid-sized businesses yet only 30% of these operate into second generation ownership.
But rather than seeing this rags to riches and back again tale as the fault of feckless and lazy second and generation as has been previously thought, we see this generational wealth trap as the result of our environment and experiences as we go through childhood and into adult life.
The neuroscience behind the way we behave as we do – which is explored in more detail in Simon’s book – shows that we are wired to react in certain ways not only because of genetics but also as a result external experience, the way experience impacts on genetics is called is epi-genetics.
We need to understand that subsequent generations undergo an entirely different set of experiences than those of their parents and grandparents. Only then is it possible to pre-empt some of the problems encountered by family businesses and ensure successful succession planning.
Generation one: The first generation is the pioneer and true entrepreneur. They have been able to create a level of wealth and success that outstripped those family members who preceded them. They will likely be highly intelligent and ambitious but most of all they are driven.
In many cases they will have experienced some hardship to achieve success and may have sacrificed familial relationships to build the business.
The first generations tend to feel high levels of self-worth but may place too great an emphasis on money as a measure of success and fail to appreciate the other important factors in life which drive self-esteem. They may also be unwilling to ‘let go’ of the business through fear it will all be lost by their successors or their sense of self-worth is tied up with their ownership of the business.
Generation two: From the outset the second generation will have their experiences shaped by the activities of the first generation. Initially life may be more financially challenging as their parents focus on building the business. Then as success is achieved they enjoy a more privileged lifestyle. However, with parents so focused on work they may not be able to build meaningful relationships at home. The second generation is also under pressure to replicate the success of their parents. Further, they will be expected to preserve the business which gives them little to achieve in their own right. This is the first generation to experience a sense of inadequacy. An inability to surpass their parents and a fearfulness of losing the parents fortune creates a cautious approach to life and limits the second generation’s success. Malcolm Gladwell’s book David & Goliath: Underdogs, Misfits and the Art of Battling Giants explores this phenomenon in more detail, noting that an individual’s morale is often based on comparisons to other people’s success. So, if a parent’s wealth is in the millions yet their offspring is unable to match that, they feel inadequate. Gladwell argues that this inadequacy is exacerbated where the external reference point is particularly successful.
Generation three: The third generation is likely to experience self-esteem issues even more acutely than their parents. They have been born into a sense of entitlement and have never experienced hardship. They do not appreciate they hard work it has taken to build the business nor do they necessarily appreciate the ease with which fortunes may be lost. It is this privilege that, rather perversely, creates the third generation’s feelings of inadequacy. In order to surpass the success of their parents and grandparents they may feel they too must be a multi-millionaire yet the opportunity to achieve this in their own right will be difficult. Second, they would have to work hard to achieve such lofty goals; an outcome which may not appeal to child entitled to a generous allowance. It is here that the danger lies. The third generation becomes desperate to make their mark yet lack the first generation’s skills or the second generation’s caution. They may make foolish or reckless business decisions and ultimately be the cause of the business’ collapse.
In his book Families and how to survive them John Cleese gives some helpful pointers of dealing with intergenerational and family differences.
To achieve effective succession planning and break the generation wealth trap, families have to understand where strength and weakness lies. If generations two and three can achieve self-esteem by recognising their own achievements, the business stands a better chance of successful transition
Choosing the right external comparators is key in understanding where individual strengths lie. If a second generation is a great designer but a less effective salesperson, their success needs to be measured against a fellow designer not against meeting a sales target.
The first generation needs to recognise the importance of attributes that are not related to wealth. By understanding the other drivers of happiness – strong familial relationships and a role in the wider community for example – the business can be built on a more sustainable bedrock. With an appreciation of second and third generation skills, the first generation may be more able to relinquish control.
The second generation must recognise their own skillsets and not attempt to replicate the achievements of their parents. This generation may also act as something of a bridge between generations one and three. By showing generation one the importance of building happiness outside of wealth and ensuring generation three appreciates the value of hard work.
Generation three must appreciate there is no sense of entitlement; that hard work and dedication are the drivers of wealth. At the same time they must also find their own way and create self-esteem through their own achievements.
Passing the Buck explores in more detail the neuroscience behind these generational imbalances and provides solutions on how to tackle them.
Ensuring a business transfers successfully through the generations requires each individual to understand the needs and drivers of the others. By recognising what makes family members tick we can not only ensure the ongoing future for the business but that each individual is able to love their life.