What are the lessons to be learned from prominent ultra-wealthy business owners whose family enterprises have thrived for three or more generations? Interviewing 100 100-year billion-dollar families, Dennis T. Jaffe, a leader in family enterprise consulting, dug out an illuminating trove. He discusses his five years of research in an interview with ThinkAdvisor.
Jaffe, based in San Francisco, talked with well-known families, from 20 countries, worth from $250 million to several billion dollars each. Average worth: about $800 million. His findings are collected in an upcoming book, “Borrowed From Your Grandchildren: The Evolution of 100-Year Family Enterprises” (Wiley-Bloomberg – Feb.26, 2020).
A project of Wise Counsel, a think tank, Jaffe’s work was sponsored by Merrill Lynch.
The overarching key to success for these super-affluent families is that for them, it’s not about profits for shareholders — it’s about building the business and investing in the family.
Indeed, the theme is long-term thinking, not short-term profit-taking or individual self-interest. All the families consistently reinvest profits earned.
In the interview, Jaffe, a psychologist and sociologist who advises families about wealth, governance and philanthropy, discusses a “generative alliance” each family forms, which is composed of the elders, professional business advisors and next-generation family members, who are looked to for innovation and fresh ideas.
Ensuring responsible stewardship from one generation to the next is paramount, and all members are in the business because they want to be.
ThinkAdvisor recently held a phone interview with consultant Jaffe, who works with families to build and create organization and policies. At one point, the conversation turned to the primary types of investments that the ultra-successful families he interviewed has favored.
Here are excerpts from our interview:
THINKADVIOSR: What does the old saying, “shirtsleeves to shirtsleeves in three generations” mean?
DENNIS JAFFE: It’s not that the family becomes poor. It’s that the family business no longer exists in three generations. They could have sold it for a billion dollars — so they’re still wealthy. It doesn’t make sense to say that in three generations, people tend to be poor; it just means that they tend not to be in business together.
What was your goal in researching 100-year family businesses?
I sought families that were successful over three generations to find what they were doing to be so successful. They’re a small number and have lessons for us.
What was the most striking finding in talking with these families?
That they wanted to invest their wealth in the next generation and build a great family. They didn’t say, “We’re rich; we can all go off and do what we want.” They weren’t creating and educating the family so they could make more money. They wanted to stay together. After three or four generations, they have a common identity, which is something they really work hard to make happen.
You quote a member of the Hermès family — the luxe high-fashion manufacturer — as saying: “You do not inherit the family business; you borrow it from your grandchildren.” Please explain.
These families are looking long term and thinking of their grandchildren and the legacy they’re going to leave them. They’re not thinking, “What’s in it for me in the short term?” They don’t look for how much profit they’re going to make; they’re thinking ahead at reinvesting the profits. They also listen to the next generation — who will inherit the business. So it’s a long-term perspective and about the relationship of the family, not individual self-interest.
Did you talk much about the families’ securities investments?
They tended to have an investment portfolio but were always looking for private businesses to own rather than just stock. By the fourth generation, they tended to have two, three or more businesses that they owned. And they had a lot of investment in real estate. So, definitely real estate and private businesses were very much sought after.
So much of their success relates to how the children are brought up. For example, the families have advisors for the younger generation so they’ll understand finance, business and family. The elders aren’t keeping their money a mystery to their progeny!
Right. To help the next generation, they talk about values and [financial] responsibility. It’s a whole learning process. The conversation isn’t about “How much [money] you’re going to get.” It’s about “What do you want to do with your life? What’s important? What do we expect of you as a family member?”
It’s surely not about producing trust fund babies.