Taking the emotion out of Next Gen planning – Nicholas Jacob and Jeremy Robertson write for ThoughtLeaders4 High Net Worth Magazine
The perception of “Next Gen” planning is of unemotional and objective arrangements. Whether we like it or not, emotion is a human reaction – often uncontrolled or uncontrollable, often ignored, and it’s inevitable that emotions will permeate future planning discussions. They are natural reactions. Attitudes are formed by emotions.
Emotions prevent rational thought. Emotions are an inevitable part of the planning process. But – should they be?
Once the emotions at play within a family and their effect on succession are understood, it is important for advisors to take a step back and apply an unemotional approach in developing family governance solutions that address those emotional concerns. By seeking to put emotion to one side and looking objectively at the thorny issues that underly those emotional concerns, advisors are more likely to be able to find workable and enduring solutions.
Are emotional responses damaging in next gen planning?
Emotion is often masked in a controlling approach to planning. Running a business is stressful; stress can and does also lead to emotional turmoil. Emotionally charged decisions will often be made by family members under pressure. Family ties can lead to greater frustration and anger if the emotionally perceived values and requirements are not met.
It’s easy to feel that emotional involvement in the planning process is a negative; but it may also be a positive. The difficulty is that, as family numbers grow down the generations, emotional responses are less and less likely to prevent and resolve family disagreements, however trivial or serious. Long term grudges or resentment are very damaging unless forgiveness is possible, and the suppression of feelings is a negative. Yet trust is also key and trust is a positive emotion which allows difficulties to be resolved. Constructively held emotional (and therefore strongly held) views can actually hold the family together. However, generally, at the end of the day emotions prevent conflicting issues being properly addressed, which can be fatal to the ongoing harmony of the family.
Taking emotion out of the equation – the importance of communication
So how can we take the emotion out of the equation in order to ensure a totally rational thought process? Family members will be opinionated, but that does not mean that they can’t think rationally if well guided. It’s the source of many a family battle that emotions prevent a seriously open and constructive dialogue.
When it is time to interview the adult next gen members of the family, their issues, concerns, worries, frustrations and ire will glean an emotional response from their parents or grandparents. It’s this emotion that needs harnessing. Just the very fact that they are more then often not prepared to share these emotions with their more senior family members is a serious problem in itself.
It’s essential to take the emotion out of those discussions and find rational solutions. Third party consultants or emotionally intelligent lawyers will have the ability to ascertain and absorb the emotional issues and find practical ways of dealing with those issues. Its remarkable how many next gens are desperate to “spill the beans” and vent their frustrations to independent people who are not tied to the family.
That’s all well and good, but if the family is resistant to rational change, the deep emotional issues that have permeated will not be dissipated. It’s a very clear fact that those families that engage in rational and unemotional discussion will be far less likely to have significant disagreements. Those that cannot see the issues in an unemotional manner will be constantly warring to the great detriment of the family as a whole – possibly for many years, or until there is a complete break up. Clear, open and healthy communication, guided by a totally independent third party is essential.
If it’s to be like the Roys in “Succession”, where nobody is prepared to engage constructively, family wars will continue and grow in fervour. Suspicions must be destroyed by fact.
United at all costs?
An example of an emotional response (often espoused by the patriarch or matriarch) is that of wanting the family to stay united at all costs. However, simply saying that a family should stay together will not, in itself, make the family adhere to those values, and seeking to foist unity on a family can be detrimental where members may, often for good reason, wish to forge a separate path. Instead, the unemotional response may be to accept, as hard as it may be, that family members might wish to exit a family wealth holding structure and to put in place a governance structure that caters for that (for example, by applying pre-determined formulae when determining the value to be attributed to an exit family member’s interest). Having a clear framework in place reduces the cost to the family from a fiscal, emotional and, potentially, reputational perspective, particularly if it avoids an acrimonious split being played out in public.
Contribution v Reward: Fairness
The very fact that families are tied together by emotion means that it’s extremely difficult to ensure fairness within the family. Fairness is in the eye of the beholder. It’s only generally possible to get anywhere near fairness when an independent person can explain fairness rationally.
Another emotionally driven issue that needs careful handling is that of contribution versus reward in families where some members are actively involved in building family wealth (for example, through management of the family business) and others are not. Common reactions include: “I do all of the hard work, so why should my siblings and I share equally?” or “My brother is lazy and wants to live off the fruits of my parents’ efforts.”
It is only right that family members who contribute significantly are appropriately rewarded for their hard work, so as not to disincentivise them. At the same time, this must be balanced against the need to avoid resentment from those family members who are not actively involved in generating wealth, often for good reason.
The unemotional approach is to consider how to reward contributing family members in a way that is acceptable to all parties. On a practical level, this is often achieved by rewarding family members working
in the business through salary, bonus, and/or other incentives at the operating level of the business, where such remuneration can be objectively set, rather than at, say, the trust level.
This example raises the bigger question of whether an approach will ever be considered “fair” by all parties when emotion is involved.
The answer may well be no, particularly where multiple generations with very different perspectives are involved, because fairness is fundamentally a subjective term. Instead, family members may be better served by adopting a solution that they can accept (even if some consider it more or less fair than others). In our view, such solutions are far more likely to stand the test of time.
First published by ThoughtLeaders4 in the High Net Worth Magazine, Next Gen Wealth Edition, Issue 20.
