As you embark on this New Year, you have thought about the future. You have made resolutions, listened to economic forecasts, planned budgets, identified key sales to make, and maybe blocked off vacation time. But have you taken account of those specific events in your family’s past that inevitably will shape its future?
The legendary business thinker Peter Drucker once observed, “In human affairs, it is pointless to try to predict the future. But it is possible, and fruitful, to identify major events that have already happened, irrevocably, and that will have predictable effects in the next decade or two. It is possible, in other words, to identify and prepare for the future that has already happened.”
Drucker’s point challenges the owners of any family enterprise. Whether you own a company with your parents, or you are trustee of an irrevocable trust for nieces and nephews, or you share use of a vacation property with your siblings, you will need to take up Drucker’s question. What aspects of your current situation are the future that has already happened?
Three events common to every family help frame this point. They are: births, marriages, and deaths.
As a family grows in number, the dollar value of its common assets is spread over more people. Title to the assets splinters. Whereas originally one or two people were the owners, now multiple individuals and trusts are owners. The existence of additional owners makes managing the assets more complicated. Coming to agreement is less simple than before. This is not surprising or uncommon. It’s what happens when a family becomes larger over time. The key is to appreciate that this dynamic goes into motion before new family members are born.
Once people in the “next” generation start marrying, inevitably questions arise about in-laws. Do in-laws get to own stakes in the family enterprise? Will trusts provide for in-laws? Do in-laws get to vote on decisions? Are talented in-laws eligible to serve in management positions?
Regardless of whether a family has decided how to handle these questions, the driving factors arise well before a family member gets married. They arise beforehand because both parties to the marriage come from families. The blood descendant is part of a family and a family enterprise prior to the marriage. The in-law, for his or her part, comes into an existing fold of people and an existing way of doing things. With respect to how a family makes decisions about its enterprise, in basic ways the future has happened well before the wedding day.
Recently a friend of mine recently remarked that the most important day of his life happened years before he was born. The day came decades before he graduated from college, met his wife, and started his own family. On that date his future in-laws’ parents died in a terrible accident. Their deaths left no clear successor to run the family’s business. This succession crisis triggered ownership, operational, and financial challenges for both family and business. The resulting upheaval created effects that lasted several decades, by which time my friend had entered the family. One might say he married into the after-effects of the accident.
These examples are not meant to depict human beings as helpless robots. Families always are free to change how they do things. Rather, the point is that basic facts from the past shape family culture and how family members encounter the future. People do not enter a family in a vacuum – not when they are born, and not when they marry. Nor, when they die, does their impact dissolve immediately.
So what does this mean? What are you supposed to do about this? Depending on the family, it may mean all kinds of things. But for purposes of this short article, it means at least three things.
- Family members who own assets together need to communicate about the respective parts they own or control. Especially if there is one large asset, such as an operating business, the situation will become more complex as the family increases in size. If multiple trusts are owners of the business, do the trustees work in synch with each other? And if the family runs parts of the business as parallel “silos,” is the silo approach still best?
- As a family grows, and especially as family members marry, the family needs to review its policies about in-laws, trusts as owners, family members as trustees, and family members as employees. If no policies exist, the family will want to consider creating some.
- Eventually death comes to us all. Especially if a death already has happened, the family needs to consider how its prior ways of doing things will affect those who later step into decision-making roles.
Now, back to the question: what aspects of your current situation are the future that has already happened? The winter months leave you plenty of time to answer.