When It Comes to Money, Silence Is Rarely Golden

https://www.nytimes.com/2019/11/06/your-money/financial-talk-family.html

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Silence was breaking Charlotte Lamp’s family apart.

Not only was it hurting the personal relationships among the hundred-plus members, it was threatening the financial engine of the family, which made its billion-dollar fortune in the international timber industry.

After nearly a century together, the family, largely descendants and relatives of the brothers who founded the company, John, James and Robert Eddy, was drifting apart — as many families do.

Members left the Seattle area where their company is based and where many had grown up, and returned home less often. For this family, a breakup could have had a far-reaching economic impact, given the shared ownership in the company, Port Blakely, which has its roots in Nova Scotia and operates from the United States to New Zealand.

“Our third-generation chief executive — my first cousin — looked around the room at the annual meeting and realized there were more board members and employees at the meeting than family members,” said Dr. Lamp, 76, who has a doctorate in family finance and is a third-generation family member through her mother. “He realized we were getting in trouble because the family was disengaged from the business,” she said.

That was 1999. The family, under the leadership of then-chief executive James Warjone, decided to create a family council to break the silence. Its purpose would be to think through family matters, air grievances and simply reopen communication.

Dr. Lamp, who is governance coordinator on the council, also has served as education coordinator, developing a family education program know as Eddy Academy. She lives in Spokane, Wash., with her husband, Don Lamp, and is a principal in Rockwood Consulting, a financial advisory business.

Talking about money can be one of the most difficult issues families face — whether they have a lot of it or not so much. And the steps that rich families take — or fail to take — can serve as a model, or as a cautionary tale, for families of more modest means.

In the case of Dr. Lamp’s family, members were not talking enough about ongoing business concerns. Their accumulated wealth allowed them to drift apart. In other families, the argument can be about the money itself: how to get it, what to do with it and who controls it.

Wealthy families have famously and publicly blown apart because of silence over money. Take the family of Abram Pritzker, for example, whose multibillion-dollar fortune rose largely through the Hyatt hotel chain and splintered because of a lawsuit over the failure of some family members to share information with others. Or the Astor family: The grandson of Brooke Astor, the socialite and philanthropist, took his father to court for depriving Mrs. Astor of proper care; the father was later convicted of siphoning off millions.

But families need not be rich to experience money-related trauma. One member talks about a fabulous vacation she has taken, while her sister seethes, knowing she can’t afford to do the same. One cousin gets to go to the college of his choice; another loads up on debt. Parents also pick favorites, giving more money to one child, who seems in greater need, than to another, who would love to have some of it too.

“My profession exists because it’s hard for people to talk,” said Alison Comstock Moss, chief executive of Paul Comstock Partners, which advises wealthy families. “There are risks to silence,” she said. Risks that money is wasted, improperly invested, lost because of bad record-keeping, given away without any thought, or worse — embezzled.

What Dr. Lamp’s family did in creating a family council seems straightforward, but it required people to be open to finding a solution. Some family members didn’t come to the annual meetings, they said, because they were held in Seattle in April, when it was cold and rainy. Solving that was easy: The family moved the meeting to June in Napa, Calif.

A harder issue was creating a family employment policy. Dr. Lamp, who wrote about her family for her doctoral research, said that until then, women hadn’t worked in the company. The new policy changed that, but only after discussions among various branches of the family.

One disincentive in talking about money is that the consequences might not always be positive. The senior generation can be reluctant to initiate a conversation about family finances, for example, fearful it will become a conversation about what’s in the will.

“It may seem safer to put this off for another year or two or three out,” said John A. Warnick, founder of the Purposeful Planning Institute. “It’s always difficult to start it. Part of what contributes to that procrastination is a fear that disclosure of information might disincentive children or grandchildren.”

That belief, advisers said, is more often a myth than the reality within a family.

“The myth is usually that their kids are going to be ruined by the money, that money will be what ruins everyone,” Ms. Moss said. “I just don’t see that as often as I see mismanaged expectations and a lack of training and preparation. Bad decisions get made because they don’t know any different.”

Some advisers suggest that one way to start family conversations is to focus on values, rather than financial assets, at least in the beginning. They say that transmitting those values will make passing along financial assets easier.

“What we see consistently in families that can pass along assets is it’s really about passing along values and legacy,” said Dune Thorne, head of the Northeast region at Brown Advisory, an investment adviser for multigenerational families and business owners. “It’s the values that make them successful, not the actual assets. And if the values transfer, the assets pass more easily.”

Some families, as a matter of tradition or necessity, have a history of talking openly and making decisions together. The Carvajal family started in the printing business in Cali, Colombia, in 1904 and is now a multibillion-dollar, sixth-generation family with business interests that stretch throughout Latin America up to the United States border.

“The family members had a habit of discussing things very openly,” said Manuel Jose Carvajal, 64, and part of the fourth generation. “Some would have discussions, sometimes very heated, but people would abide by the decisions. There was a mixture of family and business things that were talked about within the family, but never outside.”

But as the family increased in size and spread geographically — it now numbers 300 members who live throughout Latin America, the United States and Europe — family leaders moved to make conversations almost a requirement. Like the Eddys, the Carvajals created a family council in the 1990s for all members to have a voice, but particularly for the female members who had not worked in the company and lacked the same access to information as their male cousins.

Bruno Carvajal, 43, and part of the fifth generation, said this formalization of communication has helped the family in its mission. “The two main works are to keep the family united and to make sure the family remains a family company,” he said. “That focuses our attention.”

As part of that effort, the Carvajals decided to equalize some of the benefits for family members. While wealthy families often divide up the wealth from a family business by branch — meaning each branch is given an equal share, whether it has one member or 100 members — the Carvajals created a family dividend: Every member would have health care and college education paid for and receive a one-time down payment for a house.

“It doesn’t matter if you have one kid or six kids, you all get the same thing,” said Cristina Carvajal, 49, who is also part of the fourth generation. “The family really appreciates this, and it makes it easier for the family council to share values.”

But it comes with strings attached. To prevent an act of generosity from causing strife, the tuition and housing allowances are capped. “If you want to go to Harvard you have to put in more money,” said Manuel Jose Carvajal. “But you’ll get a subsidy based on the best private university in Colombia.”

Family members are also encouraged to attend a series of annual family retreats where family values are discussed, the same values that provide health care, education and housing for family members.

To insure that family members can attend, some or all of their travel costs are covered. The discussions are also recorded. (Dr. Lamp’s family also covers travel expenses. Such travel stipends, for families that can afford them, remove the financial excuse for failing to attending these events)

Instead of wading into a difficult discussion around money, some families punt by making the conversation about philanthropy and what heirs will give away. The approach is meant to ease them into managing a large amount of money they may not have even been told about.

But it can lead to confusion and even backfire.

“I understand their perspective, but we often have the same challenge here,” said Sharna Goldseker, managing director of 21/64, which advises families on philanthropy. “If a young person isn’t raised to understand the values around money, or have grandparents or parents who model it, they have a similar challenge with philanthropy.”

Using philanthropy as a substitute for a conversation can also result in bad charitable decisions. “People think about poor investments and bad business decisions, but I often see the next gen wanting to gift themselves into poverty,” said Michael Wagner, a co-founder of Omnia Family Wealth. “They see all these natural disasters and end up giving away a lot more than they thought they were. Having a rein on philanthropy, putting some structure around it, gives them a decision-making framework.”

Thirty years after the family council formed, Dr. Lamp said the 140 family members and the company they own remain in sync. But it took a lot of effort and ongoing discussion.

“You have to be committed to truth and integrity,” Dr. Lamp said. “When you are, that also raises trust. If you get an answer you don’t like, you may not like the answer, but you can trust that it’s truthful and someone is not trying to cover up something.”