[00:00:00] Hi, everyone. Welcome to the Wealth Enterprise Briefing. I’m Michael Turner, one of the managing partners at WE Family Offices. I’m joined again by Mel Lagomasino, one of the other managing partners at WE Family Offices, and we’re gonna continue a conversation we started the last time, where we talked a lot about Mel’s more than forty years of experience advising wealthy families.
[00:00:22] And we talked about what things she saw that successful families who were able to generate and [00:00:30] transition wealth and sustain wealth from one generation to another, what it was that they had in common. And Mel, you talked about three very specific ideas. One was that they had a set of values that were explicit.
[00:00:44] Two was that they thought about managing their wealth very much like a well-run company. And three was that they were very explicit and consistent in thinking about the next generation and multi-generational sustainability. We’re gonna [00:01:00] focus today on the values piece, the first one. We’ll come back and talk about the others in subsequent, uh, discussions, but we’re gonna focus on the values.
[00:01:07] And Mel, I wanna, I wanna really explore three questions with you today. One is, why do the values matter so much? Why are they so important? Two is, if you accept that they’re important to have explicit, how do you actually develop them? How do you make them explicit as a family? And then three is get practical and talk a [00:01:30] little bit about how we see values playing out in day-to-day decision-making and helping families make decisions and be successful over the long term.
[00:01:38] So welcome, Mel, and, and let’s really start with that first question. Why are the values and being explicit about family values so important when you look at families that have been able to be successful over multiple generations? Well, if you think about individuals that have [00:02:00] generated significant wealth, they usually have a value set, um, that they would be able to explain to you very clearly about what’s important to them, whether it was hard work, entrepreneurship, whatever, that, that really drove them, um, and created part of the success.
[00:02:19] The children of these individuals grow up with them, and they may or may not have some of these values. So in the first generation, the [00:02:30] decision-making and the governance is usually by the creator. In the second generation, it actually ha- has to evolve usually to siblings making decisions jointly. And those decisions, uh, can be quite difficult, uh, to make, particularly around operating assets as opposed to financial assets.
[00:02:51] And one of the things that really helps with those discussions is anchoring those discussions around a set of values that they have in common. [00:03:00] It’s totally normal that in a family of however many siblings, they’re going to have different things that are important to them. But usually we find that there is a set of core values, some of which are very connected to the first generation, but some of them that might have evolved over time that they have in common.
[00:03:20] And these values that they have in common, the ones that they have in common, even though they might have others that are different, actually help with the [00:03:30] decision-making of that second generation. And I would imagine, Mel, that these values, particularly as you move from the first to the second generation, that even with the first generation, they may be implicit But they may not be explicit.
[00:03:50] In other words, the principal, whether they’re first or second generation, may be thinking about those values implicitly as they’re making decisions. But do you find [00:04:00] that there is a value in trying to make those sort of implicit values explicit so that others can have a frame or understand that lens through which that decision-maker is, is using, uh, the values to make decisions?
[00:04:18] A-absolutely. The ex- the, the making them explicit is critical and having the conversation around this. So for example, I’m working with a family where I have, uh, interviewed the mom and the dad [00:04:30] around their values, and there’s a couple that really stand out. Entrepreneurial, net, entrepreneurial-ship, hard work, and being rather austere in terms of spending.
[00:04:41] They have six children, okay? They think that those are the values of the six children. But when we interviewed the six children, they didn’t necessarily have the same values. They got the hard work one, not necessarily the entrepreneurial-ship, and definitely there were different levels [00:05:00] of what lifestyle expenses should look like.
[00:05:02] So what that actually helped us do is have a conversation between the parents and the children, these are all adults by the way, around what does this mean in terms of the decisions they have to make about managing their wealth over time so that that wealth survives to the third generation. So that’s, that’s why they’re so important, because they actually help the decision-making, and they absolutely must be explicit.
[00:05:29] Well, and, [00:05:30] and I would imagine then to our third question about how do making values explicit play out in practice, right? If- Different family members, they could be siblings, they could be cousins, they could be parents, they could be children. If they have a different set of implicit values, that is likely going to inform how they live their lives, how they make decisions.
[00:05:54] If it’s not necessarily explicit and there are differences in values, [00:06:00] there could be a f- significant amount of tension or misunderstanding as to why so and so is making such a decision, right? Which is not the decision that I would make if I were making the decision, and it could be simply because of a, a fundamental difference in values, which values tend to be immutable, right, and, and, and inherent.
[00:06:22] And making that explicit and helping families understand, and different families member understand that [00:06:30] this person is making this series of decisions because these are their values, and those are different f- from your values, and therefore, the decision will be different. It’s nothing personal. So think about it from the perspective of this family.
[00:06:42] It totally, it totally informs the investment policy. So are we investing the money for long, long-term growth for the third generation, or do we invest the money short-term so we can get as much cash flow as we can? Okay. It involves their distribution policy. How much should we be [00:07:00] distributing out of this wealth to different family members, and how do we feel about that?
[00:07:04] Um, because some members have different lifestyle, um, aspirations than others. So I think this is why it’s so important, and this is how it, it actually gets into the nitty-gritty of how decisions are made. And once it’s clear, once that investment policy is clear, once the distribution policy is clear, then the different family members adjust their lifestyles and what they [00:07:30] do around it, but everybody knows why they’re making these decisions.
[00:07:35] Well, and, and you and I have also, I think, both seen situations where the values, particularly amongst siblings that are second generation, could be so profoundly different from each other. And again, no right or wrong, right? Just profoundly different, that sometimes it makes sense to have decision-making evolve to be separated and not joined [00:08:00] at the hip and not forced to make a common decision around an investment strategy, around a cash flow strategy, around, right, a lifestyle.
[00:08:09] And that to the extent that you can make and understand values explicit if those differences emerge- You know, there’s this big idea that families have to stay together, right? And be forced to stay together, and sometimes their structures and their trusts and all the vehicles they use force them to stay together.[00:08:30]
[00:08:30] Sometimes those value differences might suggest that they need to go two separate paths, which could be more constructive to long-term wealth sustainability than staying together. Abso- I’ve certainly seen that situation. Yeah, me too, and I think that’s one of the biggest, um, support that we can give these families actually is to say, “You know what?
[00:08:51] If you are in, uh, in such different places, you have such different objectives, that’s the best way to preserve the harmony for this family going forward [00:09:00] is actually to split and separate the assets from one to the other. And make sure the people realize that it’s not because I don’t trust you or I don’t love you or whatever.
[00:09:11] It’s just because we’re different, and it doesn’t make any sense for us to be making these decisions around this particular set of assets together. We can make decisions about where we wanna be in the holidays together. We don’t ha- And, and stay harmonious and friendly. We don’t have to have a situation where we have constant [00:09:30] tension and stress around these assets.”
[00:09:33] So if I could sum up, Mel, I think we’ve answered the question of why values matter, because they tend to inform decision-making by individuals in very important ways. Two, we’ve said that making values explicit, and there are tools and ways that, uh, individuals can make their values explicit, is critical so that everyone in the family or the decision-making unit understands the values of the [00:10:00] other person.
[00:10:00] And three is, to the extent that there are differences in values, making that explicit too, and making decisions as a result of that, as opposed to papering it over or pretending we all have the same set of objectives and values here. So it seems to me that what you’re saying is that really getting explicit about understanding values, articulating them, discussing them as a family with each other, is one of the key foundational items to [00:10:30] long-term sustainability of successful families.
[00:10:33] Exactly. Okay, thanks, Mel. We’ll pick it up again next time. Thank you, Michael.
