How can a family’s generations better stick together? ‘Generative alliance’ to the rescue
Key family-office advisors form a critical glue that helps families thrive together and survive transitions
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Many employees of family offices are missing out on the possibility of playing an important role in the long term survival of the multi-generational family enterprises they serve.
Dennis Jaffe, one of the foremost researchers in the field of family business, coined the term “generative alliance,” which is something he found in family businesses he studied around the world.
Jaffe set out to discover what made some family enterprises last, in contrast to the many statistics that get bandied about regarding the supposed low family business survival rates. He and his research team sought out a hundred businesses that had lasted at least 100 years – in other words, they had survived at least two generational transitions.
One of the things these businesses had was what he termed a generative alliance. (See: Legacy Families Rely on a Generative Alliance and Active Cross-Generational Stakeholder Alliance)
What is a generative alliance?
Jaffe noticed that in addition to the family members, including those from both the leading generation and the rising generation that would eventually replace them, there was always another very key group of people who aren’t part of the family.
Those important non-family members form the critical link between the family generations, which is what allows the generations to work together in a way that increases the chances that both the wealth and the family harmony will survive through the next generational transition.
Jaffe identified several roles that such people held, including key executives in the business, strong outside advisors who work with the business for decades, independent board members, and of course family office executives.
I believe the idea of the generative alliance presents both a challenge and an opportunity for family office employees, for single-family offices and even in the multi-family office world.
More focus on family unity
The challenge is to take a step back and really think about why the family decided to form or join a family office in the first place. It’s easy to get lost in the complexity of investing the financial wealth and structuring the legal entities, and lose sight of the family behind the wealth.
Scott Peppet, another thought leader in this space, talks about the “MLF ratio,” with M standing for money, L for legal and F for family considerations. (Peppet is president of Chicago-based Chai Trust Company LLC, the single-family office and private trust company of the Sam Zell family.)
Peppet notes that most family offices probably have an MLF ratio of about 70-20-10, meaning that the people in the family office spend 70 per cent of their time and effort dealing with the money, 20 per cent on legal matters, and only 10 per cent on family considerations. (See Peppet’s The Family-Focused Office.)
He believes that those numbers should look very different, because he recognizes that the family is too often an afterthought for those who work for the family office.
I believe that Peppet and Jaffe are singing from the same song sheet, and I’ve been trying to sing along with them, too.
The perfect setup – for now
Too many family office professionals find themselves immersed in short term work that surely seems urgent, instead of stepping back and figuring out what’s really important.
The truth is, in any family office, the current setup may be perfect for now, until all of a sudden it isn’t anymore.
The current way things are structured can look fine, even for decades, until one day, oops, those charged with running things will be answering to a different group of family wealth owners. These generational transitions are of course quite predictable well in advance, but that doesn’t mean all family office personnel are acting as if they recognize it.
That rising generation of owners will have different priorities than those who preceded them, without a doubt.
Those family office employees who recognize this and get out ahead of it, by playing their important role as part of the generative alliance, will have a better chance of remaining with the family through the next transition.
Evolution of family offices and enterprises
Successful family enterprises, including family offices, evolve along pathways over time that are sometimes difficult to conceptualize.
One way to think about this is to concentrate on the number of households that the enterprise is designed to serve. Thinking of it as “one family” isn’t helpful, but neither is “77 people” particularly useful.
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A family enterprise typically evolves from serving one household, then to perhaps four or five after one generation leaves the nest and sets themselves up as their own family units.
After that, though, those numbers can grow exponentially to, say, 15 to 20, and then 40 to 60 in just a couple of generations.
Not every family enterprise or family office will be able to handle that type of growth, nor is that likely the best outcome for most family members in many cases.
What that requires, then, is an ability to lead and have the important discussions around decision-making and governance, which the different generations of the family must have, but which, when left to themselves, are either long-delayed or potentially fractious.
The buffer or mediator role
In order for any family office structure to stay relevant and “fit for purpose,” it needs to stay ahead of upcoming changes, weighing future family needs and wants, without having any of their “client households” feeling like they are underserved and somehow stuck or captive and beholden to the family office.
Learning to play that role of the “most trusted advisor” to both generations is an important one, and the family office folks can be ideally suited for this thanks to their independence from the family system and its inherent conflicts.
One key success factor is to make sure to not be seen as “Dad’s guy,” for lack of a more gender-neutral version of this phenomenon. Smart family offices are careful to staff themselves with professionals from a variety of age groups in order to minimize this.
Some people may think of “stickiness” of clients as something only the multi-family offices need to worry about, but the idea of surviving a generational ownership transition as an employee may be cause for concern for those employed in a single-family office, too.
Resourceful professionals for the whole family
Such professionals should be seen as adding value and providing necessary resources to the family as it stands today, and as it will in the future.
This will add to their “stickiness” in both single-family office and multi-family office cases, either by having the resources that the family requires, or knowing how and where to access them.
This requires people who know how to listen and solve problems, and how to enhance the communication between family members of various generations they serve.
Ultimately these professionals will also help the family develop the ability to make decisions democratically as the number of households served continues to grow.
Regular readers of my writings will recognize that I’m heading straight toward the subject of family governance, which is an ideal place for the generative alliance to have a huge impact on the family and its ability to transition to its next generation of ownership.
In a perfect world these professionals will not come up with “here’s my solution,” but instead help the family co-create their own custom answers to the challenges they face together.
As noted at the outset, it’s not just a challenge, it’s also an opportunity to be seized.
Steve Legler is a Family Legacy Guide based in Montreal. He grew up in a business family, destined to take over the company his father had founded before he was born. After an unexpected liquidity event while he was still in his 20s, he ended up managing their family office instead. In 2013 he stumbled into the Family Enterprise Advisor (FEA) program, which turned into a career-changing calling for him. Since then, he’s been working with other business families as they face the challenges surrounding their intergenerational transitions. He works with family clients as a facilitator and sometimes as a mediator. He also does individual coaching with family members. He is the author of SHIFT Your Family Business (2014) and Interdependent Wealth: How Family Systems Theory Illuminates Successful Intergenerational Wealth Transitions (2019). He is active in many associations for professionals who work with families, as a member of the faculty of the Family Firm Institute’s global education network program (FFI-GEN), leader of the Wisdom Expedition for the Purposeful Planning Institute, and one of the hosts of Family Enterprise Canada’s “Let’s Talk Family Enterprise” podcast.
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