How heirs learn to master the tribe

This week, we are looking at how heirs learn to master the tribe. What practical methods are being implemented by families to achieve this goal? One thing is for sure: cooperation is key in this. The other is that the heirs as a group have skin in the game. Paper exercises will not get them to where they need to be.

Experiences that instil leadership

One of the most important abilities that an heir has to learn is to lead. Not only will they have an official leadership position once they take over the reins, but they will also have influence well before that. An heir is in a leadership position by birth. It is not their choice; it is put upon them. Thus, it is your responsibility as a parent or family leader to ensure the next generation learns leadership. Leadership is not learnt through theory; it must be practised, it must be experienced.

"Waste no more time arguing what a good man should be. Be one." - Marcus Aurelius

Shadow boards

How can you best ensure that your heirs learn decision-making capabilities in the context of wealth? Well, you let them have an unfiltered seat at the table of these decisions. Some extremely successful families have these structures along with different committees (more on them in the next point). Shadow boards can be implemented for small to large families. If you own the wealth and have one child, then let the child be the shadow patriarch/matriarch. Give them the same information that you have and let them make decisions. Of course, the real decisions are made by you; however, they get to practice. And they can then see the outcomes from your decisions and compare them to what they would have done. Also, this way, they will learn about the family wealth. Should you pass away tomorrow, they are in the know and can take over. This can be done at every age. I know of a family that inducted their heir into the shadow board at age 9. If the family is larger and there are several heirs, you can set up a shadow board. The heirs meet, discuss, and decide. This instils leadership. My father started quite early with this. He would hand me decisions and see what I would do, starting at age 14. He filtered them not to hide the truth, but to match the complexity to my age. It wasn't just practice; it was a simulation with safety rails.

Committees

Some families set up committees to get the heirs and the family in general involved. A family committee is a topic-specific group that will advise and work with the family firm or family office. For example, you can set up a marketing committee. The committee can directly work with your marketing department and support. Typically, you will have someone from the family who has marketing know-how on there. This is replicable for any topic. The advantage here is multifaceted. Your heirs will get a taste of leadership through committee work. The firm or office gains access to your family’s intellectual capital. And family members will gain a deeper understanding of the company or family wealth. I know of a family that makes committee participation compulsory. If you have not sat on a committee for a specified amount of time, you are not qualified to inherit shares in the family firm (they also have compulsory internships etc.). No committee service, no voting shares. It turns inheritance from a right into a qualification.

Organise the family trip

A small, but effective way to give an heir a taste of leadership is for them to organise a family trip. They are in charge. They decide where to go and what to do. Give them a budget and let them crack on. Make this age-appropriate. An 18-year-old will be able to organise something more complex than a 14-year-old. You will, however, be surprised by what an adolescent is capable of doing when they get to decide. It gives them a first taste of having to rein in their own family. Not just that, but to deal with unhappy family members and their capacity to disrupt their plans. If you think a board meeting is tough, try managing three generations of disappointed family members on a rainy holiday. That is where diplomacy is truly learned.

The Soup Kitchen

Community work is a great way to instill leadership in your heirs. It will ground them and humble them. Humility is an important factor for good leadership. Community work can come in many ways. However, one example I love is from a family that sets up their own soup kitchen once a year. Usually around Christmas time. The family purchases the raw ingredients, prepares the meal, and serves it. They choose to do the work themselves instead of funding a soup kitchen. It brings the next generation into contact with the poorest of the poor. The feeling of feeding someone with soup that you made is on a different level. The whole family takes a leadership role in a local community. And the heirs experience this every year from year 0 on. Writing a check is sterile; serving food you prepared with your own hands bridges the gap between wealth and humanity.

Experiences that strengthen relationships

Family and business are intertwined, particularly in wealthy families. Anyone who thinks they can be separated is naive. Attempts to do so are foolish. Part of an heir’s education is to strengthen their familial bonds with each other. We might think that fostering competition is a good idea. It is a terrible idea. Some competition here and there is fine and fun. However, the general modus operandi should be cooperative. A family is a team, and like any team, it is only as strong as the weakest link. Cooperation with each other can mitigate this. The Max Planck Institute in Berlin conducted a study on this. What do you think is the difference between wealthy families with good relationships and those with bad ones? The difference was the family culture and how cooperative or competitive it is. Also, winner-takes-all cultures performed overall worse on wealth growth.

If you want to protect the family legacy, make sure the family gets on well. Not just privately but also on matters of business. Neglect this, and the family legacy will crumble over time.

“A man should never neglect his family for business.” — Walt Disney

Manage a portfolio together

Shadow boards and committees not only instil leadership, they also foster relationships. There are a few good options where we can try to work on skills and leadership while bringing the heirs closer. One is to have them manage a portfolio together. Allocate some money to a portfolio and have this run by the heirs together. This is similar to the stock portfolio exercise; however, this time as a group. I know of other families that employ exercises like this as well. You can give the heirs support of your team or the wealth advisor you use, or you can let them go at it 100% vanilla. The clue here is that the heirs will have different ideas and opinions and will have to find a way to decide together. Just like they will once they have succeeded their parents. On top of this, the stakes are higher because real money is in play. And they have an extra incentive to try to beat your performance. This is where a bit of competition is healthy.

Venture Capital

In many families, the younger generations are drawn more towards venture capital. A lot of their friends might start a company, or they might do so themselves. Venture capital is often a bit fresher and hip, and it is very long-term. So getting into it early is great. Again, here you can get the heirs together as a group to make investments. They will have an incentive to develop their networks and their skills as a group. This is similar to the stock portfolio, just for a different asset. Some families even leave the whole Venture Portfolio to the heirs. So your team will work with the heirs on investing in Venture while the Now Gen (currently ruling Generation) keeps out of it. This is a good example also of a gradual handover of wealth and control. The younger you are, the higher the utility for money and power. Crucially, the 'Now Gen' must keep their hands off. This portfolio becomes the heirs' sovereign territory, where they can win or lose on their own terms.”

We had liquid assets and venture capital. You can do the same for any asset class: Crypto, real estate or collectables.

Philanthropic Committee

Philanthropy is a great tool to build the heirs’ skills, character, leadership and cooperation with each other. After all, money that you give to philanthropy does not need to have a performance requirement. And for most families, giving is done without impact measurements. Your heirs will learn social responsibility through having to give. There are cases where the next generation is in charge of philanthropy, or at least they have their own philanthropic vehicle. You can get kids involved really early, at the age of 8. This will also teach their older siblings and cousins some patience, which is a great skill to learn. Each child needs to bring a cause to the table and pitch it. The group then decides how they want to distribute their allotted money to the causes. Leave the children to figure this out. Usually, you will have kids aged 8 to 18 in this. The whole concept of course works with a single heir, too, just the team aspect would be missing.

Problem Solving

A great educational exercise is to hand your heirs a problem and let them solve it. This can be from small to large, to even existential. As an entrepreneur, problem-solving is your daily business. The same applies to wealth owners and investors, just not as intensely. Problems and crises will expose the fabric that a family is made out of. If your relationships are brittle, a crisis will show it. Getting your heirs to practice this will not only teach them to solve problems together, but it will also forge a tighter bond. Having your heirs face an existential problem as the first problem they need to solve together is a losing strategy. I know this from personal experience, and the cost of learning it the hard way was the family fabric itself.

What is Next?

Next, we will look into the psychology of a competent heir. Not only of competent heirs, but also of incompetent ones. What are the psychological crossroads? What are the typical mistakes parents make? And why do these have such big effects on the heirs?

Stay tuned, and in the meantime, please share and subscribe to my publication!

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The Family Academy Part 2: Shadow Boards & Venture Capital