Family Business Blog
Dec 13, 2010
How to Lose a Billion
The recent Dealers Group Family Office Congress included an attention grabbing presentation by Michael Southam of the Swiss based Rockcliffe Partners titled ‘How to Lose a Billion’. In it Southam described what he called his ‘glorious heritage’ as the descendant of two wealthy European families that commenced in businesses in the 1800’s. Though growing up with the trappings of wealth he discovered to his dismay, that by the time he was ready to assume control, the larder was bare.
Investigating what had caused the decline in his family’s wealth led Southam to a study of other similar once wealthy families from which he developed five rules for maintaining family wealth.
1. Hold your Position – lightening rarely strikes twice, so the chances of have having wealth builders in successive generations is remote. He also found that the chances are that what created wealth in one generation won’t necessarily work in the next. It’s therefore important to develop strong wealth preservation strategies that position the family to take advantage of future opportunities.
2. Defend your Position – Beware the predators, all families interviewed had been victims of scams or theft or made bad investment decisions through dubious schemes. In many cases the perpetrators were members of the family or close advisers. Proximity to wealth can corrupt, so without being paranoid, take care when evaluating those around you.
3. Multi-generational truths – the even distribution of wealth among offspring will dismantle the largest fortune over time and multiple spouses have a logarithmic effect. It’s therefore important to make a conscious decision that the fortune should be sustained and if so, what do you want to maintain. Is it the descendants’ quality of life or the continuity of company that created it?
4. Focus on Inter-Generational Flexibility – not unexpectedly the majority of descendants will not contribute to sustaining the wealth. In his study Southam found that 19 out of 20 family members spent more than they made. Interestingly though whilst 1 in 20 helped sustain the fortune, only 1 in 50 family members helped create wealth. Wealth does however offer what he referred to as ‘vocational freedom’, the opportunity to give back to society in the form of the arts, science, medicine and in other ways. It’s therefore important to fast track the business talent, maintain the non-business talent and isolate from the ‘dangerous’ ones.
5. Educate, Teach and Inculcate Values and Principles – according to Southam ‘pragmatism, realism and a strong sense of respect for themselves is a key factor in avoiding conflict’. Watch out for perceptions of unequal treatment, personal grievances and divergent strategy which can result in destructive conflict.
Investigating what had caused the decline in his family’s wealth led Southam to a study of other similar once wealthy families from which he developed five rules for maintaining family wealth.
1. Hold your Position – lightening rarely strikes twice, so the chances of have having wealth builders in successive generations is remote. He also found that the chances are that what created wealth in one generation won’t necessarily work in the next. It’s therefore important to develop strong wealth preservation strategies that position the family to take advantage of future opportunities.
2. Defend your Position – Beware the predators, all families interviewed had been victims of scams or theft or made bad investment decisions through dubious schemes. In many cases the perpetrators were members of the family or close advisers. Proximity to wealth can corrupt, so without being paranoid, take care when evaluating those around you.
3. Multi-generational truths – the even distribution of wealth among offspring will dismantle the largest fortune over time and multiple spouses have a logarithmic effect. It’s therefore important to make a conscious decision that the fortune should be sustained and if so, what do you want to maintain. Is it the descendants’ quality of life or the continuity of company that created it?
4. Focus on Inter-Generational Flexibility – not unexpectedly the majority of descendants will not contribute to sustaining the wealth. In his study Southam found that 19 out of 20 family members spent more than they made. Interestingly though whilst 1 in 20 helped sustain the fortune, only 1 in 50 family members helped create wealth. Wealth does however offer what he referred to as ‘vocational freedom’, the opportunity to give back to society in the form of the arts, science, medicine and in other ways. It’s therefore important to fast track the business talent, maintain the non-business talent and isolate from the ‘dangerous’ ones.
5. Educate, Teach and Inculcate Values and Principles – according to Southam ‘pragmatism, realism and a strong sense of respect for themselves is a key factor in avoiding conflict’. Watch out for perceptions of unequal treatment, personal grievances and divergent strategy which can result in destructive conflict.
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