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An insider reviews...

Christine Harland is director of Camden Writers.

Family Wealth – Keeping it in the Family
by James E. Hughes

The table of contents is fairly traditional for a book on family wealth preservation: Investor allocation, the family bank, mission statements and peer review. What is less traditional is Hughes' assertion that unless the family has defined and incorporated a spiritual component into their long-term plan, none of the rules of good governance will make sense.
Hughes' eloquent explanation of the spiritual component is worth quoting: "Every family I have observed that is successfully preserving its wealth is a reflection of the five virtues: truth, beauty, goodness, community and compassion. Transcending all of these is the family's reflection of love."

"Families that successfully preserve their wealth reflect these virtues in their relationships both with family members and with all persons outside the family."

James Hughes, a lawyer, highly-respected family business consultant, philosopher and historian, opens a rich window on the question of wealth preservation. At the root of success, he maintains, is the wise investment in human capital and the establishment of a strong underpinning of values and ethics.

Successful family governance, according to Hughes, accepts that who family members are and what they do are the critical factors, not what they own. Family priorities should provide for the education of individuals to their maximum potential. Financial capital facilitates, among other things, the best medical care, shelter, travel and education.

Sound governance, according to Hughes, enhances the family as a whole by nurturing the pursuit of happiness in its individual members. He points the Rockefellers as an example. John Davison Rockefeller, the founder of the family fortune, had one son. This son, John D. Rockefeller, had no interest in the family business and, with his father's blessing, devoted his life to a brilliant career of family governance and philanthropy.
"Spiritual truths," writes Hughes, "are the essential ethical fabric of your family and you should start your family journey with a search for this." Families learn more about long-term "wealth preservation through giving than they do through spending or accumulating", asserts Hughes, not least because decision-making around philanthropic concerns tends to lead to discussions about values. Additionally, through discussions about giving and social responsibility, grandparents, aunts and uncles can share their wisdom and communicate their own values and philosophy in a practical way.

"Success" in the family context, Hughes maintains, should be measured in generations, not years. "Short-term" for family is 20 years; "intermediate-term" is 50 years and "long-term" for family is 100 years. Annual results, he proposes, are mere footnotes in the long-term plan.
The slower pace of "family time" lends itself to the process. The risk-taking required to achieve ambitious annual goals is contrary to the long-term wealth preservation plan and sidelines the crucial process of human development.
Every generation, he asserts, must be a "first generation". The wealth creating generation probably started with little or nothing. They put ideas into action and, gradually, success was reflected in the financial results.

Successive generations, he continues, need to do the same thing. They must have the leeway to exercise creative energy over a period of time without the pressure of short-term results, and the timeframe must be generous enough to provide for the experimental process, including some missteps.
A plan that runs on "family time" is also more apt to maximize human and intellectual capital. There is the opportunity to bring the youngest family members into the business as early as possible as well as to give proper value to the older members.
Hughes warns that all this is hard work. He warns that long-term wealth preservation is "an act of extraordinary courage" for any family and requires a leap of faith. Those who are stewards today will never know whether they have been successful. It is, in the end, a matter of faith.

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