In almost every culture in the world, there is a saying, “from shirtsleeves to shirtsleeves in three generations.” This universal adage describes the trajectory that many, if not most, family enterprise systems face as they move from the first generation founder (or wealth creator) to the second generation of siblings, and finally to the third generation of cousins. The axiom says that wealth builds rapidly in the first generation, is generally maintained in the second generation, and often declines significantly or entirely in the third generation.
We have studied the trajectory of wealth across generations, and have identified the reasons for its decline and the practices that lead to its growth. We know that the three-generation rule described above is not inevitable; it is a choice. Families that defy it, and regenerate their wealth over several generations, follow the practices described in our proprietary Family Sustainability Framework. The framework is represented as a triangle, with three focal points: Growth of Assets; Family Talent; and Family Unity. Growth of assets is attained by adopting a portfolio approach to the family’s assets and businesses, including prudent diversification. Family unity and talent are essential to support the bold decisions which must be made in order to continue to grow the assets of the family and maintain family financial discipline. This is the foundation of a multigenerational wealth strategy.
CFEG advises business families on growing their financial wealth from generation to generation through proven strategies and practices utilized by leading families around the world. We prioritize the enterprising family as the main focus of wealth creation, because we recognize that businesses come and go, but business families can last for generations if they grow the essential ingredients of Growth, Talent and Unity.
Building a Worldclass Board for the Family Enterprise 2017