The Next Generation: Planning the Future

JOHN A: It's an extreme pleasure to welcome Dr. Dean Fowler to our Purposeful Planning Podcast today. Dean has served for many years as a dean of the Purposeful Planning Institute. He's a dean emeritus. Now, we want to recognize the incredible contributions that he's not only made to the Purposeful Planning Institute, but to the field. He is a pioneer of the Family Firm Institute and really a pioneer in the field. It's been my incredible privilege to learn from Dean to get some glimpses into the depth of the research he's done and the seriousness of the work that he's done. I've learned so much from him. And today, we're going to be talking a little bit about some of the kind of major lessons that have come to Dean from years of service within this field. And we're calling this podcast The Next Generation: Planning the Future. And that's one thing Dean, you've stressed with me is how important it is that be centered, even though it may start above that the work, with the rising generation family members. So, there are many who don't know you as well as I and some others within PPI do. I'd love to have you if you could share, Dean, what I call your purpose. A lot of people that would see this would be the kind of professional meanderings. You might start back with your incredible academic background but tell us how you came into the field and where that journey has taken you and where you are today. DEAN: Certainly and thank you very much for having me be part of your podcast series. I think that PPI has always brought great resources and great information to all of its members. My career with family businesses really began in 1983 when I left Marquette University where I was an assistant professor. And in 1983, I happened to land facilitating groups of CEOs through what is now called Vistage. And those CEOs were all based in Wisconsin and they were all family business CEOs. So I had an immediate introduction to family business issues. My career really took off when the legal profession in metro Milwaukee asked me to do mediation for families where both members of the senior generation had died. And now the estate plan that had been written to take account of the death of both parents was now going to be implemented. The estate plans themselves were brilliant. They were really well done. There was nothing wrong with them. And they were done by the best attorneys there were. The problem was that the estate plan as designed by the parents did not meet the needs of the next generation. And it led to conflict and dispute among siblings and among cousin groups. And I was brought in by these attorneys to mediate those discussions so that they did not go into lawsuits. The biggest impact that had on me was that I realized that you could have an excellent estate plan that was designed by very central estate planners, the best in their fields, that still blew up at the death of the parents. And what I learned was that the estate planners did not take into account, in fact, they didn't even interview and rarely knew the next generation. So the plan failed to address what the goals and objectives of the next generation were. And consequently, it led to conflict. Because of that, I totally shifted my whole focus in working with families and business where I said, “I want to work with families that are committed to engaging the next generation or the rising generation in the planning process itself.” So that we can design the future with the goals and needs of the next generation in mind. So that there will be success, not conflict at the death of the parents. JOHN A: Being one of the nuggets of practice or wisdom that I picked up from you is when you taught me the importance of the term, ‘your former children’ or ‘your former kids’. Do you want to just share briefly what that's all about? DEAN: Well, as you all know, as you work with your own clients, we're dealing with families where the younger generation are, in fact, legally adults. They're often in their mid 20s to their mid 40s, or 50s as the parents are doing their planning. And I think it's important to recognize that some people call these adult children. I prefer to call them former children because they're no longer children. They actually are adults. They have their own independence. They have their own goals and needs. They probably are married. They have their own children. And we need to have a planning process where all the parties in the room are taken seriously. And all the parties in the room doing the planning are respected as being individuals, not just members of an extended family or a family of origin. JOHN A: That term former children that I've used quite effectively. And I think it lands with the parents. And they catch themselves. And it helps them understand this concept of really viewing their children who are now kind of partners in the planning process rather than people that are like chess pieces being moved on a board and in terms of the legal structuring being done. Dean, as your work progressed and you began working with the next generation, I've heard you talk about how you would open up an engagement often in a conversation with the founder of a business or the eldest generation of a family enterprise and how you would explain to them that you needed to work with the rising generation in the family. Could you maybe just kind of give us a sample of what your conversation would have sounded like? DEAN: Yes, well, frequently. I was usually referred by attorneys or accountants to one of their clients. Or I gave workshops and seminars where they invited their clients. And there were two paths in the workshops and seminars. I always ask that the spouse be included in the meeting. Whoever was the chief emotional officer — in the Midwest that typically was the wife — I made the point that the whole family needed to be engaged in the process of planning for the future. And oftentimes, it was the chief emotional officer, the member of the family that was responsible for nurturing the family as a whole. That brought me in for my engagements. Other times, I was actually introduced directly to the primary founder of the business who often was the father, but not necessarily. And in those cases, I would make a statement that in order to work effectively with them, I needed to also work with their family members or if it was a multi-owner group of cousin consortiums, I needed to work with the whole cousin group. And what happened was families that were willing to do that tend to be families that are willing to honor former children. So I made it a condition in my work that the younger generation, the next generation, had to be participants in the process or I wouldn't even consider working with them. JOHN A: I love that. And I heard the earnestness with which you stuck to that and it paid big dividends. I don't think this was to the audience. I don't think we understand the incredible impact that Dean has had on the field. I said earlier that he was a pioneer. And I really mean that in all senses of that word. But Dean, if I know this isn't in kind of the agreed upon questions, but if you don't mind (I think we have the time), if you could maybe set the stage for how you were led to do the research because you began to research earnestly, after you had been kind of serving professionally in this field for maybe 10 years? But that research would lead to some real breakthroughs and influence the rest of your career in a major way. DEAN: Well, as I mentioned, I had a real shift in my own practice which was probably after about 10 years. So that would be in 1993-1994 where I decided intentionally to shift from doing mediation work with families that were in conflict and start selecting families that were committed to working with the next generation in the planning process. So one of the things that came to my mind was that I needed to shift where the conflicts and problems were. In those clients that I worked with doing mediation, in the first 10 years of what the characteristics were of these healthy families that actually did include the next generation in their planning process of what made those families unique, what were the success factors, or what I ended up calling ‘the actual competencies that these successful families had’ rather than focusing on all the problems that the families that had conflict and dissension in the transition process. So I decided it would be important to go out and actually study using research methods and tools on what those key success factors and competencies were that were characteristic of successful families. And to do that, I launched a major project that was international. And I developed a questionnaire and it actually had a lot of questions on it. I think about 128 (questions). But they were designed at that time in terms of identifying what I thought might be 22 competencies that families would have in their success. And I gathered that from looking at the families that I'd worked with and literature I'd read and other things to identify the success factors and competencies in these families that were committed to the next generation. JOHN A: And Dean, if I recall, you actually solicited questions and questionnaires from other members of the family firm Institute at that time. DEAN: Yes. And then what I did is I sent this out to contacts I had throughout the world. So throughout the United States, through family business centers, through accounting firms. And I had associations with accounting firms that were based in Australia, New Zealand, England, Ireland , and Scotland (a kind of English speaking British group), and we sent out this questionnaire survey to clients of theirs, both members of family business centers At universities and these various accounting firms and clients of my own. And then I hired a statistician, a Ph.D. professor at the University of Wisconsin in Milwaukee, to analyze the data. And see what we found, in terms of the way people were responding to these questions. And what we found was that there weren't 22 competencies. But in fact, there were 12 competencies that met the standards of statistics. We did Chromebox Alpha analysis. We did statistical reliability studies. And then we did publish that paper, I believe in 1999, with the Family Firm Institute. If people want to go read the published article, I believe it's still available through the Family Firm Institute or if people really want to know, I've got a copy of it. JOHN A: And I do as well. So if you reach out to me or Dean, we'll get you a copy. I think it's important research and it has influence on others. It should influence many others. DEAN: One of the significant aspects of that research, at the time in the mid 90s, was several accounting firms are also doing research and publishing some papers. But all of their research was limited to asking questions of the CEO. This research that I completed asks questions that have a wide range of people within the family business environment. And we were able to separate that data out by category. So for example, we knew the CEOs who answered the questions. We knew the active next generation family members who answered the questions. We knew the inactive family members. We knew board members. And we knew key executives that weren't family members. So this was research that wasn't just aimed at getting data from the CEO but also from the whole spectrum of key players and stakeholders within a family business. One of the aspects I find important from that is my research showed that the CEO tended to rate all of these issues higher than anyone else did in the family or advisors or key managers. So I like to say that the CEO has tended to have rose colored glasses and didn't recognize where issues might be within the extended family network. JOHN A: I think that is understandable and it is the value of a kind of a 360 analysis that is much broader than just starting in the CEO office. Before we kind of shift into how you then applied the research and how that influences the work that you would do for the next 25-30 years of your career, I'm curious Dean, we keep using the term ‘family business’ more and more. I'm using the term ‘family enterprise’ because I do acknowledge the difference between a family with an operating business versus a family that has a say harvested that entrepreneurial capital and is now dealing with more passive investment assets, the so-called family of wealth. But I believe, while you've been talking about this research, it has application to the broader spectrum of family enterprise, not just the operating business, would you agree? DEAN: Yes, in fact, I have always had what I call a forced circle model of family business which is different from John Davis, three circle model. He actually published an article in the Family Firm Institute practitioner which is about the four circle model and how, in fact, it's different from the three circle model. And the reason I'm bringing this is because it appears to get to your point about wealthy families and family enterprise in general. The four circles that I talked about are the individual, the family, the business, and the ownerships and how those four overlap. In families of wealth, you still have the individual. You still have the family and you still have ownership. Of the four circles, the only one circle is different. Namely, instead of having an operating company, you now have an operating family of wealth. It might be through a family office or through several of my clients who sold their businesses and foreign venture capital companies, for example. And now we have a holding company where they invest their wealth and not necessarily using a family office but with a family holding company. So I think of the four circles that I identify three of those are basically the same. The three circles. So that means nine out of the 12 competencies are basically the same. And then there are parallels between the competencies that fall into the business because in my model, the business competencies — I did write this article and you can get a copy of the article by contacting PPI, I believe, because I sent it to you. And it's available through FFI — a strategy, a clear structure, and clear leadership. Well, certainly not only in a family business you need an organizational structure, strategy, and leadership for that organization. But clearly in any family enterprise, whether it's a holding company, a venture capital group, or a family office, you also need those three competencies: strategy, structure, and leadership. As I said, the other nine competencies are just characteristic of any wealth of family business that have joint ownership through the association of family members. JOHN A: Being you've kind of spotlighted some of the competencies, as you call them, and I love that term. I've heard you also refer to them as critical factors. But how then did you ultimately kind of harness the power of the research into an assessment? And how did that assessment of these 12 competencies or critical factors ultimately influence your consulting practice? DEAN: Based on doing the research and knowing that I had 12 competencies that actually were statistically reliable, which means that they vary independently of one another, that's what it means to be statistically reliable. So that you might have one competency that's high and another competency that's low. And you can actually measure the differences between those as distinct variables. So what I did is I created an assessment questionnaire back in 1996-1997 based on the research. And at that time, it was just an Excel spreadsheet model that I had to manually calculate answers. But I also had the entire stakeholder group, the CEO, the non-family, executives, the advisors, the next generation (that were active in the business and those that were not active in the business), the spouse, and anyone who really knew the family or knew the extended family. But it was a cousin group that completed this questionnaire. And what I was measuring is where were their best competencies and where were their worst competencies. Because from my point of view, where you want to talk that they agree on what the best competencies are. So let's use those strengths to work on the future. And now we've identified their weaknesses out of those 12 competencies. Some are high, some are low. Let's work on the ones using the strengths to work on their lower scoring competencies. Now, this really critically shifted the way I did all my consulting. And I think this is important. So besides saying that I only wanted to work with families that were willing to include the next generation, I also said, “My starting point is always to use this assessment process to have the family complete this questionnaire and to really learn where each stakeholder lies within the spectrum of these 12 competencies.” So that we could get a read report which was still confidential and didn't disclose any one person's responses to see an overall view of how the family as well as their outside advisors and non-family executives were seeing these four major circles about the individual, the family, the business, the ownership, or if you wanted the enterprise and the ownership. And then using that result from this assessment questionnaire, which shifts the way in which we actually attacked the issues when working with the family. What I found with a lot of other consultants is that they kind of have a whack a mole approach, that is they have the same model that they always use and they start attacking what they think should be the most important issues, generally. And gradually move through a process that they do with every single client the same way. By using the assessment questionnaire, I found that you don't approach your consulting work with families all the same. For example, if a family already has an excellent estate plan, it's not necessary to do a lot of estate planning first. But if a family shows that they're not very strong on an individual level. For example, family members lack maturity, they're not clear about their purpose, or their breakdowns in communication in the family, those will be three competencies in the family circle: maturity, purpose, and communication. Well, we better start working on those items within the family before we even attempt to develop an estate plan. So I think that you need to start where the family says they need to start, not where you as a consultant think they need to start. JOHN A: And where do you habitually start? And I think, if I had a hope and a dream for what we'd accomplished that day, we're really hitting it now. I do think that the habits and the traditions of the planning professions lead us, particularly the attorneys and the CPAs. Even the financial managers to a degree, we tend to start with the structuring and the planning. And that's a mistake because it ignores the possibility, perhaps probability, that there's a lot of other fundamental competencies that need to be dealt with. We need to become aware of to avoid the situations that Dean found himself first brought into. Dean, could you wrap by maybe sharing how you would suggest or invite those listening today to begin or to learn to apply and use what you've created? And maybe tell us a little bit about this new trademark term, the family navigator? DEAN: Okay. Well, first of all, any of you who want to learn more, PPI is sponsoring a webinar with me and my business partner, who is Josh Gentine and he's a member of the Sargento foods family that has been a client of mine and uses this process. And Josh will be joining me on July 11, at a webinar by PPI at noon Eastern time. We'll discuss this in more detail at that time. One of the things I comment on is that if you want to learn more, there's a lot of resources out there — I wrote a book, which is available on Amazon called Love, Power, and Money. It's modeled over these four circles, the chapters of the book. And at the end of each chapter, there are questions that you can explore with your clients. I've also published many articles, if you go to my website, www.deanfowler.com and look under Resources, you can see many of my articles and essays are listed there that you can download — So I think one is education. The assessment process that we're now using is based on my research and is called the Family Navigator. And one of the things that's exciting about it with my partner, Josh Gentine, we have upgraded the software and the technology behind the family navigator to be very current, the best practice possible for assessment process tools. So we're excited about launching that family navigator this summer. And we do have a model that's available for anybody that wants to use it now. So I think that's important. I wanted to make one kind of closing comment besides you can get that education. You can come to the webinar. I've got TV, video, and articles and so on at my website, www.deanfowler.com, but I think what's really important is that I'd like to send the message. I think there are structural reasons that lawyers and accountants need to work with their primary client who's usually the primary shareholder who has voting control. But there's no laws against having the family say to their advisors. “Could you please get to know my family? Could you please interview my children? Could you please give my children access to your knowledge and understanding so that you can be in dialogue with our entire family?” I've found that the attorneys and accountants that I work with are more than happy to get engaged with the next generation if they have the permission from the senior generation. And that removes the legal barriers they have over confidentiality and client privilege and those kinds of issues. So I have my senior family members actually write a formal letter to their accountants and attorneys saying, “You have my permission to work with my former children.” JOHN A: That's a wonderful way to end this. Thank you, Dean. This has been a really inspiring and illuminating Podcast. I'm sure everybody will benefit from listening to you. And I want to echo the invitation to come back on July 11, for the webinar that Dean and Josh will be leading. Thank you, Dean. DEAN: Thank you, John. Great to talk with you and work with you again.