Last week I was in a conversation with a friend and we were noting that, when it comes to succession work, the emphasis by most advisors is on planning. It seems that on websites, in marketing materials and in conversation advisors talk about the time they spend with clients on clarifying objectives, goals and values and then on developing strategic plans aligned with those values, goals and objectives. There is nothing inherently wrong with this, but as near as I can tell, the process typically ends there. Planning is the norm. It seems to be the current state of a best practice. However, in my experience, it not enough. Not by a long shot.
The Focus on Planning
Indeed, it seems that in succession work this exclusive focus on planning can be catastrophic. As we all know, with any plan, the rubber hits the road in execution. In corporate America, it is evident that most strategic change initiatives fail to achieve their objectives (most studies of C-suite sponsored change show that 80-90% of these initiatives fail to achieve the expected results). Increasingly this is being seen as an issue of too much time spent in planning and too little time spent in preparing the culture to adopt the desired change. The assumption has been that if you plan really well, you will have taken culture into account, and the people will respond. This type of planning involves clarifying objectives, strategic thinking about complex issues, discussion about alignment, seeking input from various stakeholder groups (including employees), communicating the plan and so on. Months are often spent on the planning and launch phase of these initiatives – only to have those months of preparation fade into obscure institutional memory and soon to be replaced by the next big initiative. In the corporate development world, it is assumed that planning is enough. It turns out the assumption is daft.
Turning to the world of family succession (as a form of inevitable change), the situation is not so different. There is an old estate planning joke (of sorts) where an attorney is being arrested standing over the dead body of a client with a smoking gun on his desk. When questioned as to his motive, the lawyer says, “That plan he just signed was so complex and elegant, with so many moving pieces, I just had to see if it would actually work.” As morbid as that is, it is uncomfortably close to the truth of what most planning attorneys do in reality. They may have a pretty good idea that the plan will save money, but whether the plans will actually enhance the lives of the people most affected by them is almost always near total guesswork by both the attorney and the clients. The plans will reduce taxes (which often seems to be their core objective), but beyond that it is Russian roulette. Will the family be able to make those plans work? Will trusts work as designed to realize the deeper intent of clients to help their children lead productive, connected and happy lives? Or will the estate plan foster conflict, pain, entitlement, waste and ill-will? Will the estate plan support the sustainability of the family and the enterprises they own or will the entire edifice crack and crumble under the strain of transition? Will a life’s work have a net positive impact or will that legacy be dissipated? In short, will the plan foster greater well-being or will it breed suffering? Too often the answer is “We just don’t know – we’re guessing”. People know the outcome they want, but they have no idea if they will achieve it by the plan they create.
Recently, I heard about a leading attorney in the estate planning field who ran a little experiment. As told to me, he gave one group of attorneys a written scenario and asked them to design a plan. He give the same scenario to another group and showed them a video clip of the hypothetical scenario family arguing and asked them to design a plan. He expected that the attorneys who were shown the video would be more sensitive to family dynamics in the planning they did. Apparently, to his real surprise, the attorneys who were shown the clip created much more restrictive plans with far less flexibility. Their response was to double down on what they knew – namely create more structure and exert more control through restrictive documentation. We know from family dynamics that this emphasis on control only exacerbates anxiety and its all too familiar responses – fight, flight, flock, freeze and fix. Adding more restrictive structures serves only to perpetuate reactivity and drama – and with it, emotional suffering and financial loss. Exacerbating the problem, clients, who feel out of control themselves, often grasp at structural solutions and thereby collude with the advisors’ impulse to impose greater restrictions.
Under these conditions, is it any wonder that estate planning often becomes problematic? What we know is that most estate planning does not work in its main purpose – namely preserving financial wealth for generations. It success rate on that score is dismal – roughly the same as the corporate failure rates. Most great fortunes are squandered rather quickly, not because they are taxed or mismanaged by professional advisors but because the human dynamics render the plans dysfunctional. Wealth is lost for non-technical reasons and most families can’t get it right. They stand mesmerized by the wrong things. Those families that manage to sustain wealth are few and far between.
The Missing Link
Between planning and execution of the plan lies a profoundly important step that is almost universally ignored in all but the rarest of estate planning processes. Yet this missing piece is probably the most important aspect of transitions. It marks the difference between success and failure.
Let me illustrate. I follow the Seahawks and the season has just begun. Whether you like or hate football, the Seahawks have been a team that plans well and executes well enough to keep bringing home divisional and league championships year after year. It is a team that is well coached. Pete Carroll generally is good at what he does. While I have never heard him asked this question, I do wonder what he might say if he was put to the choice of having either the best game plan in the history of football or the best-prepared team in the history of football. My suspicion is that he would choose preparation over planning without giving it a second thought.
There are reasons for this. The first goes back to the famous saying of the renowned Prussian Field Marshall, Helmouth Von Moltke, who famously said, “No battle plan survives contact with the enemy.” Or perhaps less elegantly, what Mike Tyson said about boxing, “Everyone’s got a plan until they get hit.” In football, players practice the same plays over and over. They rehearse situations through visualization. They watch film of the other team. They even meditate and do yoga. They talk about the situations that will arise with coaches and teammates and within their unit. They physically and mentally prepare to deal with those situations individually and collectively. They practice the skills of their positions and they know their assignments. They rely on their teammates to do their jobs with skill and ability and work hard to come to trust their teammates to do that. If a teammate is in trouble, they know what they will do to support that player. They know what they will do if the entire play falls apart in the middle. They study the opposition and know their weaknesses. The game plan is the least of it – often discarded or at least back-burnered after the first 10 scripted plays once the real game begins. Players and teams triumph not because of their exquisite game plans, but because of their relentless preparation.
By analogy, wealth succession can be seen as demanding sport. It is not played physically, but it is played against the backdrop of people’s emotions, personal histories, family narratives and the sense of moral justice among family members. If the stakes are high, the financial wealth is often imbued with the freight of need, insecurity, anxiety, past hurt, and a host of other concerns practical and ephemeral. Is it any wonder that plans that are designed to do the lightweight lifting of saving taxes cannot do the heavy lifting when it comes to the weight of family culture? In the face of this complexity, it is preparation that creates both resilience and flexibility. It is preparation that allows family members to flex with the inevitable vicissitudes of transition and to adapt to fluid and challenging situations. Preparation, when done well, shifts a culture to ensure that it has the capacity and the capabilities to move through the choke points of generational succession.
The Difficulty of Preparation
So if this gap between planning and execution is so evident – if it is clear that preparation is key to successful generational transition – why does it get virtually no attention? There are a number of reasons:
First, it takes time. People are busy and they don’t see the importance of preparation. Preparation takes a degree of commitment and work on the part of the people involved to communicate and work together. They must learn and learning involves making mistakes and evolving to new levels of competence and ability. Families often lose focus and motivation to do the necessary work.
Second, it takes the family leader stepping off the field and assuming the role of coach. After being the quarterback for so long, this transition to the role of coach is not easy for many matriarchs and patriarchs. Those who successfully navigate this transition are far more successful than those who insist that they will capture the spotlight to the very end. The successful leaders view their job not so much as preparing individual children for the responsibility of wealth, but as developing a team of family members who can address the relational and financial complexities of transition.
Third, it is demanding work. Successful transitions often require difficult conversations and the development of skills and capacities that are not currently in place. It requires skilled facilitation and commitment over time. It requires learning new things about the nature of family and how wealth successfully moves from one generation to the next. This means that families must constructively confront their own anxieties – not avoid them.
Fourth, it typically requires that someone outside the family take professional responsibility for preparation. But there are few professionals who are incented to take this on. Why is it that no one tells the parents that the critical difference between success and failure in generational transitions lies in preparation? Why is there a deafening silence on this issue? I suspect that it is because no professional is paid to pay attention to it. Lawyers are not paid to prepare the family, only the plan. Financial advisors are constrained by business models, skill sets and compliance restrictions from doing much beyond rudimentary education, coaching, and facilitation. Most accountants have their eyes firmly fixed on the rearview mirror and have little interest in this part of the process. Exit planners are working on deal making because that is how they are compensated. In short, no industry is being paid to pay attention to this and consequently no one is motivated to take on the deep work of preparation. Without incentive, the most important aspect of successful transition gets scant attention.
This is a case – at least in part – of following the money. No profession’s business model supports this deep work. No profession is specifically trained in it. Even more troubling is that the skills required to prepare a family are not the skills these professions have developed. And, to make matters worse, many professions face both ethical and compliance requirements that discourage substantial involvement in this area. Consequently, the message in the marketplace is all about planning – pay attention to the ads and websites and you will notice that it is universal. Because the incentives lie in planning, everyone focuses on planning and the planning process. The market gaps around preparation mean that very few talk about it in meaningful ways.
The Evolving Market
More and more families are tumbling to this gap and looking for professional help in their work together, but it is hard to find those who truly know what they are doing. There is a slowly growing supply of advisors who are competent to deliver these services, but they are a scattered and rare breed. The very wealthy are finding their way to the handful of people who do this work well, but the skill sets of those who are effective are uncommon and the work often require high degrees of what Dean Fowler calls inter-disciplinary fluency.
The ratio of planning to preparation in most families is typically 98% spent on planning and 2% spent on preparation. For successful transitions to become normative, that ratio probably needs to be reversed.
To shift that balance, what is needed first is some common sense. It is as simple (and as complex) as recognizing that the gap between planning and execution must be filled with preparation. What is needed to fill that gap are professional advisory networks that empower family leaders to do the right things to prepare their family for succession. What is needed is a revolution in the mindset among advisors and clients that planning, while necessary, falls far short of sufficiency. What is needed is a deep recognition of the fundamental moral obligation by all to shift family culture through that preparation. What is needed is a rising and expanding profession of skilled inter-disciplinary advisors who can help families do the deep work of preparation. What is needed is a commitment to ensure that financial wealth – when passed on – will do good in the lives of those who receive it.
Otherwise families suffer.
Advisors, it seems, agree that they have a moral obligation not to add to that suffering. And family leaders – at all generational levels – would most likely agree that they have a moral obligation to ensure that the lives of family members will be enhanced and not damaged by the plans their advisors create. Change is in the wind – the revolution of deep preparation is beginning to take root. It is the wave of the future. The work is no longer pioneering. Families and their advisors are rapidly climbing the innovation curve. There are questions of scale and there are market inefficiencies, but the shift is underway. If you have read this far, you are clearly part of this growing movement that believes in a better way and you are part of the emerging solution, not the problem.