New ways to harmonise the family and its wealth

Ariel Davidoff

The Adapted Parallel Planning Process model harmonises the apparently irreconcilable requirements of members of a wealthy family and the family business

Everyone is familiar with the famous saying “shirtsleeves to shirtsleeves in three generations” and related stories such as Thomas Mann’s “Buddenbrooks”. The plot follows a scenario that is often witnessed by the advisors of wealthy families. The first generation creates the wealth, the second, and perhaps third, keeps it level, but the fourth becomes disinterested in business affairs and either squanders away the fortune because of a desire to acquire luxury goods and lead a luxurious life or because they go into a line of business, such as becoming an artist, which is not conducive to maintaining high levels of wealth because of the tendency to fund below-average yielding business ventures.

The everlasting question is how to unify the need to preserve the wealth while at the same time looking after the demands of the family, especially as the family expands from one member (the founder) into a large number of descendants, from generation to generation, and the wealth remains the same or decreases, should no new business ideas succeed.

The Parallel Planning Process

In the academic business world, the work of Professors Carlock and Ward has been causing advisors to think about family businesses and family needs in a different way. They recently published a model, called the Parallel Planning Process, which they use to harmonise the requirements of the family and the business that at first glance look irreconcilable.

For example, the family may have arrived at a place where none of the heirs wishes to enter the family business. Perhaps these heirs wish to purchase a lavish family home or to finance their own business such as the production and promotion of paintings by the eldest grandson. In this example we have, say, a fully-fledged and functioning family business, generating profits in the retail area or in real estate. The business requires that profits are retained at the company level to be reinvested and it might require that someone responsible makes adequate and wise business decisions to continue the path of growth. These potentially diametrical interests need to be harmonised. These decisions become more and more complicated the more generations sit at the table.

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New Ways to Harmonize the Family and Its Wealth: The Parallel Planning Process by Ariel Sergio Davidoff