As the climate crisis accelerates, we see a changing set of realities, norms, and values emerging – also within the family wealth space. The next-generation is particularly attuned to these changes and placing increasing demands on family business leaders to act.
Irrespective of these mounting pressures, the leadership transition is often a challenging time in the family business journey – with only 13% making it to the third generation. Among the factors which are critical to their long-term survival is the ability to develop a distinctive and robust entrepreneurial orientation (EO) within each generation – defined as the ability to reinvent the business with each generation and seize new opportunities inside and outside the family setup.
By bringing in family governance specialists, family businesses can identify the emotional ownership barriers that deter the next generation from continuing the legacy. Emotional ownership refers to a range of factors that affect whether the next generation will join the family business – these being a duty to the family, desire for leadership, and the affective identity factor. The duty to family relates to whether the desire to continue the family business is intrinsic or extrinsic. Some members of the next generation may hold a genuine desire to be involved, whereas others might feel pressure from family members to be involved and therefore be driven more by the fear of disappointment. Though an intrinsic desire may seem preferable, it is often the case that even those who feel they have no other option still succeed as they are keen to make a name for themselves.
This intrinsic or extrinsic motivation further relates to the second point – the desire for leadership – which determines individuals’ desire to lead, succeed, and keep the family quest alive. Thirdly, the affective identity factor relates to the collective unconscious of a specific generation. Each generation is defined by the era in which they are born and the world circumstances in which they grow up.
This final factor is of particular importance for families as it allows them to identify new opportunities for the family business which specifically play to these generational contexts and changes. Where peace and security were primary concerns for the Western baby-boomer generation in the wake of WWII, purpose and the climate crisis are of primary concern to the next generation. If these concerns are not integrated into the business, families will have difficulty in attracting talent.
For Gen-Y and Gen-Z, the family’s responses to the climate crisis are increasingly becoming a critical determinant of their involvement. Few family offices are equipped to understand the dynamics of governing their clients’ survival in the face of this enhanced generational challenge.
Humanity at large is waking up to the severity of the climate crisis and the imperative of taking decisive action. Wildfires and extreme weather are making the physical impact of the climate crisis impossible to ignore. The next generation is already acutely aware of this threat – with some children suffering from eco anxiety-related the threat of environmental disaster. 2020 saw the rise of Greta Thurnberg and the Friday’s for Future movement, whereby children across the world took to the streets to demand change. This ethos is no different in the private wealth space, with an increasing number of young wealth owners moving allocations over to ESG and impact investing.
According to a study by the Spectrem Group, 67% of Millenials with capital want their investment to reflect their social, political and environmental values
In years to come, companies will be fighting for their souls in the face of this new reality – those who don’t have an entrepreneurial orientation that reflect environmental values are likely to fail. Within the family office space, there are further complications as factors surrounding emotional ownership blur the boundary between personal and professional. As a result, family members may outright identify with or reject the company mission. On a psychodynamic level, it is these factors combined – entrepreneurial orientation and emotional ownership – which interact and determine whether individuals of the next generation will pursue the family quest. For family offices that manage family assets, this can be a major source of disorientation.
She told me – ‘Dad, I don’t think I’ll join the family business after studies… You know, what we do is not good for the planet’ – Kanope family business client
Psychodynamic tools can determine how these factors interact and allow family offices to propose and structure an asset allocation in line with the family project.
Identifying human nature behind business decisions
Amongst family businesses, there is a tendency to describe the company as ‘part of the family’ – whereby the business is personified and takes on a metaphorical role. As a result, family members have an emotional connection with the ‘business’ itself which develops over time.
By understanding the business as another member of the family, it is possible to uncover the human motivations behind business decisions and untangle the web of emotional relationships that are at play.
Not every family office has internal family governance expertise. Sometimes a lawyer takes on the work of family constitution, despite it requiring more interpersonal skills than legal skills. This kind of interpersonal expertise is essential for family offices to master the complexity of emotional dynamics within a family. These dynamics are what drives business decisions – where ultimately there is a battle for love before the battle for power and money ensues. Tools which capture unconscious cognition can allow family offices to map the unspoken truths which shape individuals’ behaviour. Visual sketches and family genograms are two such tools. By merging these two methods, family offices are able to create an entirely new psychogenealogy tool whereby the persona of the business is revealed and situated in the constellation of existing family relationships. Through this use of these tools, family offices are able to explore the relationships between family members and the business – and also facilitate discussion about its future.
A four step process to understanding families as dynamic systems
- Start by sketching the family business today and 20 years from now.
- Then trace the genogram across three generations taking the time to describe the emotional dynamics between family members.
- Next ask the participants to transform their drawings into fictitious family members and then include these in the genogram.
- Finally trace the associated emotional links between the family members and these two new members.
Through this process, family offices can often identify the polarization of the perspectives – where the current business is presented in an unrealistically negative light and the future business is presented in an uncharacteristically positive light. Attributes of masculinity are associated with an unfavourable status quo, and feminine attributes are associated with this optimistic future. Additionally, participants often reveal a stronger emotional bond with this feminine representation of the future, than with the masculine figures of the past.
Human beings have a strong dramatic instinct toward binary thinking, a basic urge to divide things into two distinct groups, with nothing but an empty gap in between.
Hans Rosling, Author of ‘Factfulness: Ten Reasons We’re Wrong About The World – And Why Things Are Better Than You Think’
Ultimately it’s important to remember that polarization is part of human nature – and that of course, nothing is entirely good or bad. Psychodynamics is a tool to examine binary thinking in action, in order to facilitate discussions where family members are able to meet each other in the middle, create a new shared vision and make better decisions collectively.
The role of the climate crisis
Right now, the climate crisis presents the most polarising topic for younger and older generations – and is a catalyst for the younger generation deciding to go their own way. For business leaders, failure to take the environment into account through a long-term strategy can cause a rupture within the family itself.
Alignment with a feminine future and the need to innovate can be understood as a call to develop an entrepreneurial orientation that is in line with social and environmental needs. For family offices, it could be an effective tool to help clarify how the asset allocation strategy could integrate more strategic social and environmental investments in a context of intergenerational transition. Climate action should therefore not be seen as an obstacle or fashionable investment, but instead a broader calling to bond generations around this new family vision.