The saying "wealth shall not last two generations" conveys a powerful message to all family members struggling to keep the business out of harm's way. Some organizations succeed and overcome a very important generational challenge, but many family enterprises succumb to internal pressures and fail to reach the third generation. Before you rush to judgment and label my perspective as pessimistic, I want you to reflect on why this adage is real. Through my years of experience in resolving family conflicts in Asia, I can confidently assert that family wealth is even more prone to rapid dissipation, often failing to extend beyond the second generation.
Wealth often disappears due to a combination of factors stemming from changes in attitudes, behaviors, and circumstances during the transfer of wealth across generations. I have listed below a good number of compelling reasons to support my pronouncement that wealth will not last two generations — all culled from my experience mentoring next-generation family members — and at the core of these reasons lies a lack of survival instinct and/or a low Adversity Quotient (AQ).
Lack of Survival Instinct/Adversity Quotient
I often hear this statement from founders: "It is heartbreaking that my children lack survival instinct. They are living a comfortable life and have been sheltered for many years — so different from what I went through when I was their age." This sentiment resonates within numerous family-owned businesses, highlighting a perceived decline in entrepreneurial drive, resilience, and determination observed in first-generation founders. Such decline can lead to challenges to maintaining and growing the family business across generations. The lack of Adversity Quotient (AQ) among next-generation family members can be concerning. Growing up in an environment of wealth and privilege may limit their exposure to hardships, resulting in reduced resilience and problem-solving skills. A low AQ can hinder their ability to handle challenges in the family business, reducing their preparedness for leadership and potentially impacting the long-term success and continuity of the enterprise. I am sharing some reasons why many next-generation leaders have a low AQ.
No. 1: Irresponsible Wealth Transfer
Transferring wealth to your children can be dangerous if not done thoughtfully and responsibly. In 2011, movie star Jackie Chan announced that he had decided to give away half of his money to charity when he dies. Chan added that he was not planning to leave any of the millions of dollars he made during his film career to his son, Jaycee.
"If he is capable, he can make his own money. If he is not, then he will just be wasting my money," Channel News Asia quoted Chan as saying.
Inherited wealth can foster entitlement, diminish work ethic, and perpetuate social inequality. It may create dependency, erode personal responsibility, and disconnect individuals from the value of hard-earned money. Unearned riches can breed complacency, stifling ambition and promoting a lack of accountability. With newfound wealth, you can expect family conflicts and identity issues to follow. Ultimately, it can hinder personal growth, impede social mobility, and widen the wealth gap. Nevertheless, the impact of inherited wealth varies among individuals, and proactive measures such as financial education and responsible wealth management can mitigate its adverse effects and promote positive outcomes.
Due to the inherited wealth, next-generation family members frequently experience heightened financial security during their upbringing. This increased security may diminish the need for the same level of survival instincts exhibited by the first generation, who might have faced greater financial uncertainty and risk.
Part 2 will be published next week, but in the meantime, in line with our discussion on family business continuity and to aid you in securing a lasting legacy for your business that goes beyond just the second generation, I am thrilled to announce an upcoming event on August 19, titled 'Family Business Continuity: Ensuring a Fail-Proof Succession Plan.' As the moderator and co-resource speaker, I will be joined by esteemed global thought leader and Harvard senior lecturer Dr. Josh Baron, AGI CEO Kevin Tan and JG Summit President and CEO Lance Gokongwei, who will share their invaluable insights and experiences on business longevity, leadership, generational transition, and succession planning.
Given the significance of this event, I encourage all families who are actively seeking to secure their business success to reserve their spots as soon as possible, as seating is limited. To register and obtain further information, please reach out to Marivi Estrada of ICON Executive Asia at 0977-835-5533.