Author’s third book continues to challenge accepted financial wisdom and smooth the transition of wealth to next generation
Adam Bisby
During a 2006 meeting with fellow Canadian businessman David Chilton, author of The Wealthy Barber, Thomas Deans received what he calls “extraordinary advice.”
Less than 48 hours after the official launch of the third and final book in his bestselling family wealth trilogy, Thomas Deans recalls how some advice from a financial planning legend set the stage for the prolific writing and public speaking career that would follow.
It was 2008, and Deans had recently completed his debut title, Every Family’s Business: 12 Common Sense Questions to Protect Your Wealth, following the sale of Symplastics Ltd., an Orangeville, Ont-based manufacturer founded by his father in 1973. Deans joined Symplastics as president and CEO in 1999 after managing the Bank of Nova Scotia’s government relations department for nearly a decade.
During a 2006 meeting with fellow Canadian businessman David Chilton, who had self-published The Wealthy Barber 19 years earlier, Deans received what he describes as “extraordinary advice.”
“David said you can leverage your first book to be a speaker, or to be a consultant, but you can’t be both — at least not exceptionally well. So I went the author/speaker route and never looked back.”
Some 2,000 keynotes later, Deans remains “a pure-play thought leader.” He says he’s “paid to challenge conventional wisdom and to stretch people’s imagination about how generational wealth can be transitioned to preserve and build both family relationships and the wealth itself.”
Here’s what Deans, 61, had to say about protecting and transferring family wealth in conversation with Canadian Family Offices.
What shaped your attitudes and approaches to intergenerational wealth? Who are your greatest influences?
I grew-up in Montreal and Toronto in the sixties and seventies watching both my grandfather and father build significant but distinct manufacturing businesses in the chemical and plastics sectors. Their habitual reinvestment of their corporate profits into their respective operating businesses year after year meant that their businesses had the operating capital to grow consistently for decades.
This bias toward self-financing is something I discuss in my first book (Every Family’s Business), and it’s a feature that can cause complexities when it comes to the transfer of a family business. Concentrating family wealth in one operating business for decades can be one of the most profitable, and yet paradoxically dangerous, decisions a business owner can make.
Watching my grandfather sell his business in 1997 at the peak of its enterprise value, and similarly watching my father exit his business in 2007, weeks before the collapse of global capital markets, fundamentally influenced my central premise that a family business should never be gifted to the next generation, but rather sold to the highest bidder.
When I wrote Every Family’s Business, I had no idea how controversial that message would become. In my keynote speeches, I often remind business owners that if their children don’t want to buy the family business that they should sell it and transition the wealth.
It’s easy to divide cash at the estate level, but difficult to divide an operating business among siblings. I have never met someone who has inherited cash and been disappointed. But I’ve met more than a few people who have inherited a family business and been thrust into doing business with all their siblings — and it seldom ends well.
Your first two books ask 19 fundamental questions about protecting and transferring family wealth. Which question from each book is most relevant today?
That’s easy: In Every Family’s Business I offer one question that the controlling shareholder is encouraged to ask their children: “Are you willing to risk your capital to purchase the shares at full market value based on a third-party valuation with the view of acquiring voting control?”
Whether the controlling shareholder is inside or outside the family business, it’s a tough but powerful question that cuts to the very core of why most family business transitions fail.
Thousands of business owners have learned that their children simply do not want to risk their capital to purchase the family business. They learn that their children working in the business are often doing so out of loyalty, or out of a sense of duty to their parents, or out of a fear of being disinherited if they quit. Since most business owners store their wealth in the retained earnings of their operating business, and have adult children who don’t want to purchase the business, it’s not surprising that so much family wealth is being destroyed.
My favourite question in my second book, Willing Wisdom: 7 Questions Successful Families Ask, may seem banal, but it often leads to extraordinary family conversations. “What would you do with an inheritance” seems like such an obvious question, yet not all families invest in meetings where it can be answered honestly.
Indeed, the lack of preparation of heirs is a problem. Every day, an estimated $300 million is inherited by Canadians and $3 billion by Americans. If a family with significant wealth has not sat down with their trusted advisors in a safe, well-designed family meeting run by a professional meeting facilitator, their wealth transfer plans are prone to risk, assuming that there is a plan. We know that 15 million Canadian adults, and 137 million American adults, do not even have a legal will.
More than one billionaire in North America will die intestate this year. For those who do have will, documents are often badly outdated.
What inspired the new book?
The Happy Inheritor: How Successful Families Prepare Heirs and Transfer Wealth was born out of frustration and confusion. Remember that any author who writes a decent book is trying to convince themselves, not their reader, of an idea. In my case, I was trying to convince myself that some people transfer wealth with great care and joy, while others use their wealth to control and destroy. It’s really one or the other.
My research led me in the direction of personality disorders, and toward one in particular — the covert narcissist who uses their wealth to divide family relationships. These people can be incredibly difficult to spot in a family system because they often profess that “family is everything.” I’ve met hundreds of people on my speaking tours who shared stories of family members committing some of the most unspeakable mental abuse using their wealth as a blunt instrument of control. They described family members tiptoeing around the narcissist for fear of triggering their rage, or worse, being subjected to the silent treatment. The narcissist sets out to psychologically destabilize family members with the goal of controlling the relationship.
The Happy Inheritor makes the case that if you are expecting an inheritance from a narcissist, you might want to start saving and investing yourself. Narcissists aren’t just difficult people, they will promise assets to a family member and then amend their will late in life if they feel slighted — they are often pathological liars and cruel. Narcissists represent about 2 per cent of the adult population, so if you want to understand why our courts are full of families in estate disputes, The Happy Inheritor is a real eye-opener.
How does your new book differ from the first two?
Instead of offering more questions to help families start conversations about the transfer of their wealth, I decided to describe the processes that successful families adopt to prepare their heirs and transfer wealth. The vast majority of people are kind, decent and honourable, and want their wealth to unlock possibilities for the rising generation.
Unlike my previous two books, I describe a step-by-step approach to holding a facilitated family meeting with trusted advisors present. I have been a guest speaker in hundreds of these meetings, and they are beautiful to witness.
One of the often overlooked benefits of a family meeting is that everyone hears the same message at the same time. This is an idea that dates back to the Gilded Age and John Rockefeller, who was an early pioneer of using family meetings to prepare heirs to understand the duty and responsibility that comes with inherited wealth.
When giving to multiple beneficiaries, what is the difference between fair and equal?
In Willing Wisdom, I make the point that how we transition wealth is as important as what we transition. When a patriarch and matriarch invest in a facilitated family meeting, they begin a slow but deliberate process of voluntarily relinquishing control of their wealth that can take decades. This is counter-intuitive, and takes great self-awareness and introspection.
At the centre of these clearly communicated estate plans is almost always an unwavering commitment to equality. Someone who leaves a family business worth $5 million to one sibling and $5 million in cash to another may think they are being fair and equal. Had that person instead held a family meeting with their advisors present, they would understand that one asset — the family business — comes with a tax bill. This is only one of the many ways unhappy inheritors and broken families are built carelessly by confusing fair and equal.
Many of your readers are entrepreneurs who are used to running the show. What kind of shift in mindset needs to happen to ensure wealth is transferred successfully?
Many people believe entrepreneurs are driven principally by money, yet in many cases money is simply a way of keeping score.
Entrepreneurs are typically driven by control and the independence it can bring to their personal and professional lives. But here’s the part most entrepreneurs miss: Estate plans aren’t always triggered by death.
Increasingly, they are triggered by cognitive decline, and if an entrepreneur hasn’t gotten out in front of this issue and prepared their heirs by relinquishing some control, it may not bode well for the smooth transfer of wealth.
The ultimate act of control is to voluntarily relinquish control, and this can feel awkward for entrepreneurs who have used control to build wealth. In The Happy Inheritor, I talk about entrepreneurs struggling with cognitive dissonance — holding two core beliefs that remain in opposition to each other. For example, “I love my children and want them to have my wealth,” versus “ I love my children and want them to work hard.” You can understand the paralysis that often ensues, and that’s a problem that needs to be resolved.
When you think about the wealthy families you’ve worked with, what are the common themes among those who have done it right?
The best family meetings are not about the matriarch and patriarch, but rather about preparing the rising generation to feel connected to family wealth through storytelling and philanthropy. Successful meetings happen when parents or grandparents are able to say to their heirs, “I don’t want you to be a version of me, I want you to be more. I want you to explore your own unique gifts and talents.” Generosity of spirit almost always precedes the generous transfer of wealth.
Since your first book was published, many recipients of family wealth are now the ones thinking about transferring it to the next generation. How has the treatment of intergenerational wealth evolved?
When Every Family’s Business was released, it was common for business owners to gift their business to the next generation. Since then I’ve seen a huge reversal. Now business owners are asking the rising generation if they want to risk their capital and purchase the business. There is no right or wrong answer, just better decisions being made by both generations. The idea of measuring the success of a business in terms of its longevity is emerging as an old idea.
Now business owners are asking a more pertinent question: “How can we pursue the longevity of our wealth?” Knowing when to exit a business is as important as knowing when to start a business, yet little is written on this subject. If you ask investors in Nortel, Blockbuster, Lehman Brothers — I could go all day here — they will tell you that every business has a beginning, middle and end. It’s an organic view. Everything that is born must die.
What kind of feedback have you received on your books?
I know from reader feedback that these books have started family conversations and helped sell family businesses inside and outside of the family. But most of all, I know that thousands of families have begun to meet regularly to build wealth transfer plans collaboratively and openly.
Silence is the great destroyer of family wealth. My dream is that my books will keep families thinking and talking about the last taboo — their money — long after I die.
Source: Original Article
