Family Business Audiocast | Episode 27 | Dr. Thomas Deans | Detente Financial Press Ltd.
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About Our Guest:
Dr. Thomas Deans is a sought-after professional speaker, delivering over 100 speeches annually on intergenerational wealth transfers and business succession planning. He is hired by financial institutions and advisors around the world to speak to clients. He has been recognized as the TEC/Vistage Speaker-of-The-Year twice and has spoken in 28 countries. He is also the acclaimed author of family business and wealth management books, Every Family’s Business, Willing Wisdom, and The Happy Inheritor, with over two million copies in circulation. His books provide innovative techniques and guidance on protecting wealth, estate planning, and business succession.
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[Transcript]
R. Adam Smith: [Intro] Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I am fortunate for my many experiences within the family firm industry.
A warm thank you to our live audience on LinkedIn today – and for those listening in the future.
A brief comment on why I created this broadcast: private companies are a passion of mine, having grown up in a family of entrepreneurs, and having engaged for two decades in deals, strategic transformations, investments, and boards, with an array of fascinating family enterprises, family firms, and family offices. I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem. Whether you are a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now, it is time to turn our [01:00] attention to our accomplished guest on today’s episode.
I'm very pleased to host Tom Deans today. Thomas, great to have you on this show and to be with you again.
Thomas Deans: Adam, great to join you.
R. Adam Smith: Well, you are an expert at this. So, I will open up and talk a bit about you, and then we’ll roll with it and let you do your thing. Looking forward to it.
So, about Tom. He is a renowned global authority on family wealth transfers and an international best-selling author as well. He recently published another book, which we'll talk about today. His works have profoundly influenced the way hundreds of families manage and transition their wealth. One of his best books, Every Family's Business: 12 Common Sense Questions to Protect Your Wealth, is acclaimed as the best-selling family business book of all time in its category and was also recognized by the New York Times as one of the best [02:00] top 10 business books owners should read. With over 1 million copies sold in over 100 countries, it indeed continues to guide countless families globally.
Dr. Deans has also delivered over 2,000 speeches in 28 countries, which of course solidifies his reputation as a prominent thought leader on these matters, including specifically intergenerational wealth transfers.
So, Tom, great to have you. We're going to dig right in to our fireside chat today. I'm going to talk about some of your proprietary views on succession planning and your books and some of your key lessons you've learned and worked on with your family clients.
In many of your keynote speeches, you emphasize the importance of selling a family business to the next generation rather than just gifting it, which is a more typical form of transfer. Can you talk a little bit about that and on the psychological and practical impacts [03:00] of this approach? And where did you come up with this idea in the first place?
Thomas Deans: Well, that's a great place to jump in. And just before we start, Adam, I always like to make it very clear I am not a financial advisor, I don't sell product, I don't sell businesses, I don't even consult. So, you know, in your intro, you refer to my family business clients. I actually don't have family business clients. I'm a full-time professional speaker, thought leader, writer, commentator, media personality. All I do is quite literally travel and speak on this subject. And that really frees me to be a little bit contrarian.
And many of my proprietary or contrarian or controversial ideas have really been born out of my own personal experience running a family business, and then of course selling a family business, and then talking on the subject for the last 18 years, as you said, over 2,000 times in 28 countries. It is really a global subject. [04:00] And what has made that first book so successful, Every Family's Business, so successful is the fact that it really stepped out of the conventional wisdom and pushed the boundaries of conventional wisdom by offering a very different idea. And that is, as you said, this idea of gifting a family business versus the next generation, the rising generation, buying it at full market value based on a third-party evaluation. No one had written that book. Every single, and I mean every single, book on the subject—and there are dozens if not hundreds of books on family business succession planning—and all of them carry the traditional idea that the way you transition a business is you die and you gift it.
You give it. You give it to the next generation who are told that their job is to continue the business owner's legacy. And my own experience, [05:00] which I draw upon in the book, is really a family culture, looking back two prior generations of my family who started very different businesses, involved the next generation, and then sold them. And then we transitioned the wealth.
So, my grandfather, for example, had a chemical manufacturing business, a really, really big business, publicly traded. We didn't give it. We didn't give it to the next generation. We sold it and transitioned wealth. My father started a plastics company in 1973, a plastics manufacturing company. That’s the business that I joined at the age of 37, ran that business for eight years as CEO, and he didn’t give it to me. I was actually in the process of buying it at full market value based on a third-party evaluation. And then a third party made an unsolicited offer to buy us, and we took it. And guess what. We’re going to transition the wealth one more time.
So, everything I write about, everything that feels controversial, [06:00] has really been born out of just a very different family culture where we really give birth to entrepreneurs and we really create the expectation that they will start their own business and that we will transition wealth to the rising generation in our family who will have access to capital to start a business that they're uniquely talented and passionate about.
So, it really breaks away from the traditional idea that the job of the next generation is to continue someone else's dream. That just did not resonate with our family. And so, you know, as you look at the family business landscape, nine out of ten firms in North America—actually, 90% of all businesses globally are family owned and controlled. They’re everywhere: retail, import, manufacturing, wholesale. Every sector is dominated by family ownership. And most of them are clinging to this old traditional belief that you measure the success [07:00] of a family business not in dollars and cents or margin or growth, but in years in business. Longevity seems to become the metric for defining the success of a family business. I just disagree. I disagree profoundly. And I've spent the last 18 years trying to build a case for that simple idea.
So, that's a little bit of a summary of the first book, Every Family's Business. Transitioning Business. We can get into the weeds, into the details, of how a family might go about exploring whether or not the next generation wants to risk their capital and buy the business. We can go in a whole bunch of different directions.
Any thoughts on where you want to go, Adam?
R. Adam Smith: It's quite a profound book. I appreciate you sending it to me, and it's quite a simple idea, but yet still very complex at the same time. So, I'm glad that you have taken somewhat of a counter conventional wisdom approach to this tricky issue of succession. We see it very often in [08:00] mergers and acquisitions, of course, and in large operating companies where families build wealth over decades. And then they have to decide, okay, you know, we don't want to run this anymore because it's too much work or it's too stressful and/or there's a lot of wealth built up. And of course, the majority of that transition is through third party process, investment banking or an auction or selling to another family office or private equity firm. And then those distributions then trickle down through the family.
But as you point out, a lot of the times, the next generation, G2 or 3 or 4, they don't necessarily want to inherit that business or maybe they do want to inherit that business, but if they want to inherit it, to eliminate the friction, the emotional friction and the financial friction, then it can be quite elegant to do it your way, which is to actually take the wealth that's been created and recycle [09:00] that and double down into the same business. It's quite fascinating.
I'd like to hear more about your experiences running your family business as well, previously. What are some of the experiences that influenced these teachings going back to your own experiences?
Thomas Deans: Well, I remember turning 18 and my grandfather gave me a gift, a very odd gift; he gave me an incorporation. So, he didn't give me a corporation. He gave me an incorporation. He paid the legal fees for my first company to be incorporated. I mean, there was no operating business. But the expectation was, because we talked, always talking business. I grew up watching entrepreneurs.
And, you know, from family systems theory—that is the study of family as an organization—we know that when young people, adolescents, grow up watching entrepreneurs, there's a higher probability that they're going to be entrepreneurs. Similarly, when family grow up watching a parent or one or two or many family members who perhaps are smokers, we know there's a higher probability that a family member will smoke [10:00] as an adult. Families repeat. We repeat good habits. We repeat bad habits. And so, I think part of my message in my book is, you know, if you're growing up in an entrepreneurial family, one of the great gifts we can give our children is a love of business, a love of commerce. But that's a very different idea from teaching your children to love a business, one business, the family business.
I think what makes the book so different is that it gives entrepreneurs this reminder to teach their children to love business, to love commerce, to love risk-taking. What we often find is that founders who struggle to scale their business, they have tough years. Those early years; they're a grind for most entrepreneurs. And often when they're successful, what they want to do is help the next generation avoid those grinding years. And so, the path of transitioning the business, the one that feels right, [11:00] is the one where we just simply gift the business to the next generation without asking them to risk anything authentic of themselves. They're not asked to risk their capital. And often what they're doing is conflating employment income with ownership, with equity.
You know and I know that owners, founders, quit safe jobs. They went to family. They borrowed money. They went to banks. They borrowed money. They used their own personal savings to start and build a dream, a business, from nothing. And then what do they do? They promptly ignore that experience and give their business to the next generation without asking them to risk capital. It's destroying families from the inside out. Often the next generation feel a tremendous sense of loyalty and an obligation to step into that business and continue their parents' or grandparents' legacy.
What we do know is that the success rate when a business is gifted is terrible. [12:00] Roughly a third of businesses survive to the next generation when they've been gifted. And of that 30%, only 10% will survive to the third generation. So stated differently, if we have any founders listening, they have a 3% chance of their grandchildren owning and operating their business. They're really, really long odds. And so, the book is a little bit of a sobering reminder that pursuing the longevity of a business is really, really a dangerous strategy in terms of protecting and transitioning wealth.
R. Adam Smith: When you talk about only a third of the gifted/inherited succeed, what does that mean? And how is that data gathered?
Thomas Deans: Well, it's an old piece of data. And it just means that if a business owner starts a business, scales a business, and runs it for their entire life and then dies, and then transfers the equity on death—which is, by the way, the typical method, right? They don't gift shares while they're alive. What they do is they retire, ask the next generation [13:00] to run the business while they pull a salary until the day they die. We know that those succession plans are not working, primarily because that business founder isn't dying statistically at age 72 now. They're dying at 92.
R. Adam Smith: Got it.
Thomas Deans: There's a long 20-year period where they have left the operations but control the voting shares. And the rising generation aren't in their 30s when they inherit the business. They're not even in their 40s. They're increasingly in their late 50s, 60s, and 70s when their parents in their 90s are dying.
It's not working. Often, you're finding the rising generation is just looking for permission from their parents to retire, never mind run the business.
R. Adam Smith: Got it. So, you talked about, there, not just the trickiness. You're talking about the transition of the sale itself and all the emotional/financial issues. But also, there's this operational side of it, right?
So, talk about the correlation between [14:00] operating success and the outcome of these transfers. Like, for example, you have this Willing Wisdom Index, which is a tool you designed to help owners assess gaps in their succession and estate planning, which is a proprietary index that you use around the willingness to take over the business. So, I’d like to hear your views on the importance of operational success, and how does that relate to the success of the actual transition itself?
Thomas Deans: That’s a really great question. So, what we know is that half of all business owners in North America do not have a will. If a business owner doesn't have a will, they have absolutely no succession plan.
Sometimes they think they do. They think that they've had long, repetitive conversations with their family about who will get the business when they die. But if there's no legal will, that and $2 [15:00] will get them a cup of coffee. There's no plan. The level of disorganization—we’re not talking about advanced estate planning and succession planning. We’re talking about the basics. A hundred and fifty-two million US and Canadian adults don't have a will. It's heartbreaking to watch families, surviving family members, clean up the mess and try to piece together the transition of a business when conversations and proper planning haven't taken place.
So, part of my message in my book is to help reframe and bring urgency to this subject. A business owner that, you know, while they're in good health, who can get out in front of this, work with their advisor to hold a facilitated family meeting and say, look, I've got a business worth $5 million, $50 million, $500 million, and one day I won't be here but this business will, and we need to get out in front of this right now and figure out how this business will transition.
We know that [16:00] it is really easy to divide cash at the estate level. It is brutal to try to divide an operating business, particularly if some family members are in the business and some family members are outside the business. So, part of what I'm doing in all of my books is to create urgency by offering some basic questions in these books that families can sit down and ask themselves to find out whether or not there's a buyer in the house. Is there a family member who wants to risk their capital and buy the business? If the answer comes back ‘No,’ there's a bunch of family members who enjoy working in the business but don't necessarily want to own it by buying it, then what I'm saying is, you really need to sell that business.
I’m a keynoter. I do conventions all over the world. Industry conventions, financial advisors hire me to speak to their clients. When I’m doing these speeches, you can often see that rising generation looks so sad when I say that. It’s like, oh my God, [17:00] who invited this guy to this event? I mean, I just thought that I’m working hard in this business. All I have to do is just kind of keep working hard and wait for someone to die and then I get it for free.
I can see them looking so sad and despondent, which is why I move quickly into the next part of my speech which is, listen, if your kids don’t want to buy it, it’s not necessarily a bad thing. What I say is, take the business to market, sell the business, transition the wealth. To who? Most wills are written so that we transition wealth to the next generation. When I get to that part of my speech, you should see the next generation perk up and get excited about my message. In many cases, look, they just don't like and love the business the way that a founder does.
We have been led to believe in our culture that when we sell a business, the buyer is the victor, and the seller is the vanquished. What I'm doing in my book is say, no, no, you got it all wrong. The smart, dynastic, successful, [18:00] multi-generational families are the ones that know when to get into a business and when to get out. Both are important. What we know is that families who know when to get into a business and then cling to the old idea, the old adage, that we will never get out and we will measure our family’s success by generations—we’re a third-generation family business, fourth-generation family business, fifth-gen. Really?
Name one stock, Adam, that has beat the street for 100 years.
R. Adam Smith: Right.
Thomas Deans: Because that's all a family business is. It's one stock. Now, you tell me how responsible it is for a family to concentrate their wealth in one illiquid stock called the family business, to concentrate all your wealth in one stock, and expect that stock to beat the street for 100 years. It's insane.
R. Adam Smith: As I talked to hundreds of families over the last couple of years, especially, there's a meaningful expansion of interest in using the family office [19:00] structure to make investments and acquisitions of companies and also to consolidate private companies into a holding company or into a multifamily office/holding company.
So, I think one of the other things to talk about briefly is the distinction between the functionality of the SFO versus the MFO, and let's say on the SFO we have the Angelo Robles and others talking about the elegance of the SFO as a clear organizational structure. And, of course, the SFOs have to deal with all of the succession planning you're talking about.
But I would like to hear your thoughts on perhaps the trends in the rapid expansion of the MFO community and the holding companies as we think about this massive scale of the larger multifamily offices. I think that at some point there's going to be some Berkshire Hathaways out there, [20:00] for example, like we're seeing at BDT or Pritzker or LVMH.
So, I'd like you to transition a little bit from, you know, the tactical challenge of the transfer of the asset into perhaps there's a broader trend going on which will ameliorate that issue a bit as companies consolidate.
Thomas Deans: Listen, there's very few families to make that leap from concentrated wealth in an operating company to broadly diversified holding company with investments across many different industries, sectors, and currencies. They just simply don't do it. Most people go, listen, we’ve started a great family business, we’re a great real estate development company, real estate is what we know, real estate is what we do. Even the unborn are going to be doing real estate development. That’s the trajectory of most families.
Very few can detach from their operating business and say, this real estate [21:00] development company has had a great run for twenty years, but you know what? Our son or daughter has a real penchant and talent for software. Maybe we should fund that dream. Maybe we should create the conditions for the next generation to be the people that they're meant to be, to use our surplus capital to unlock their natural talents and gifts.
Do you see the profound difference between those two ideas? One, this is who we are and what we’ll be and all we’ll ever be, which is a really suffocating and quite frankly dangerous idea, to one that acknowledges that the next generation just does not typically share that same passion or talent as the founding generation.
So, the MFO gives expression to the idea that the family moves to broaden and diversify their holdings. And it's smart. And that's why it's working. And whether or not that multifamily office goes, and they are, [22:00] and starts to use private equity to purchase, what are they purchasing, Adam? They're purchasing old family businesses that are collapsing under their own generational weight. They're picking family businesses off for pennies on the dollar because that family is still clung to the idea that that's all that they will be.
So, you could take all my ideas in Every Family's Business, for example, and flip them upside down and say, if you're an entrepreneur or you're a multifamily office or a single family office and you really want to grow your return on invested capital, start buying old family businesses with multiple generations working in the business because it's a clown show. They're destroying their wealth trying to figure out how to get that ownership into one branch of the family. They're litigating. The courts are full of families in dispute over their succession plans. They're stuck. They're lost and they're destroying their wealth.
Every Family's Business is offering a different path which says, listen, your legacy is not [23:00] your operating business. It begs the question then, what is your legacy? Well, I'll tell you what it is. It's not an operating business. It's your family. There's a big leap between those two ideas. Listen, Adam, of the 100 largest firms in America in the year 1900, do you know that only 16 were still in business in the year 2000, 100 years later? Here's the controversial part of my message: operating businesses don't last. They never have.
And here's the second part: business owner, if you think your business is your legacy and that that's the thing that you're going to be remembered for, let's play a little game here, Adam. Tell me, who is the founder of Coca-Cola?
R. Adam Smith: I don't think there was a Mr. Coca-Cola.
Thomas Deans: There was not a Mr. Coca-Cola. When I'm doing a convention, I got 500 people, 1,000 people in my audience. I ask that question rhetorically of my audience, and you know what I get back? Crickets. Nothing. No one knows and no one cares. [24:00] Third most valuable consumer brand in the world and no one cares who the founder is. No one even Googles it after the convention. No one cares. A business is not a legacy. You know what a business is? It's an instrument of wealth creation. It goes up in value or it goes down in value. This is a brutal message to deliver to founders.
But boy, when they understand what I'm saying, and they can see a shift and make that leap in logic from their business to their family being their legacy, that monetizing a business that no one wants to buy and risk their capital for is smart, as I said earlier. It’s easy to transition cash. It is really difficult to transition a business to people who don’t want it.
R. Adam Smith: Okay. I think it’s important when you say that the legacy is not necessarily the business, or it's important to keep in mind that the business is mercurial and not sustainable, but rather it's the family. But when you say [25:00] it's the family, you also mean that it's the wealth of the family and that wealth can be—
Thomas Deans: Correct.
R. Adam Smith: —determined and decided in different ways. And therefore, that brings us back to legacy. I'd like a couple minutes from you on your perspective of what legacy means for these families.
Thomas Deans: Let me just tap into my own family history. So, my grandfather, chemical manufacturing, and that business was sold. Plastics manufacturing is my father's business. It was sold. I have a publishing company. It's a great business. I got three titles. I sell millions of copies of my books around the world. It's a great business.
I have two kids. Married 34 years, two kids, 31 and 29. I've asked them if they want to risk their capital and buy my business at full market value based on a third-party evaluation. Adam, what do you think they said?
No, they got their own ideas and they have access to family money to go fund those new, exciting ideas that are unique to them. This one is going to get sold too. Three and out. Are we a failed [26:00] family business? I don’t know. I guess using the traditional metric we are. We never transitioned our business to the next generation. But I swear to God we have our first dollar from 1920. We seem to have found something in our family culture that allows us to use family business to create wealth and transition it, but also to give the next generation the room and the freedom and the ideas and the access to capital to maneuver it and fund their own dreams.
It's different. It's a different idea. Am I right? Is someone wrong? I don't know. I'm just saying it's worked really well for us.
R. Adam Smith: That's wonderful. It's important to have this range of views. And as I've spoken about legacy many times, including with you in our live event a couple months ago with Monika [Nadova Kroslakova] and Octavian [Graf Pilati] and Dominik [v. Eynern], we had a great talk about legacy as well.
I think what I'm saying is that even though society can look down on wealth creation, wealth creation for a lot of these families is connected to the legacy because [27:00] it allows for risks to be taken and decisions to be made and to take care of their family. So, I'd like to keep talking with you about that.
Tom, one more thing on the Every Family's Business book that you've written and has been selected by the New York Times as one of the top ten business books that owners should read about family business. And as you mentioned, it's sold over a million copies, which is awesome. So, if you could share one or two things that resonated most with the readers about the 12 common sense questions you've proposed in the book, and how do those questions challenge the traditional approaches to family business succession planning?
Just maybe one thing that comes out of it. Then we'll go to the audience.
Thomas Deans: We've touched on it. I mean, some of the questions go to the controlling shareholder, some of the questions go to the rising generation who perhaps are working in the business but don't own it. And so, what the 12 questions are trying to do is bring clarity between the two generations about whether or not there's a buyer in the house, and the order of the questions [28:00] are really important.
But the first question asks both generations to offer an explanation of what they think the five-year vision of the business looks like. This is a gentle question to ease into a conversation about succession planning. And I've had situations where the founder is asked that question and paints a beautiful, beautiful vision of the next five years for that business, like audacious stretch goals, big ideas. And it's like, okay, that's fantastic. And then I'll turn to the rising generation and say, and what does the business look like in five years for you? What is your five-year vision? And the next generation goes something like, I don't know, I think the business will be kind of, you know, bigger and stuff.
Adam, that is not the answer of an owner. You know what owners say? Owners say, I want to sell this product line. We have a negative gross margin. I want to buy. [29:00] I want to accelerate our acquisitions. I want to ditch this product line. I want to fire this guy, hire this girl. They have clear ideas and many of those ideas are in opposition to the founder. But that is the answer of an owner.
So, often what these questions are revealing is, look, there's an owner in the business, there's not an owner in the business. If there is no family member or key employee or group of employees who want to buy your business, here's a news flash. That business owner has a couple of ideas; they can sell to a strategic buyer, they can sell to a financial buyer, private equity, they can do an ESOP, they can go public, but that's it. No one is inventing new ways to exit the business. You can't take it with you. The Egyptians tried; they buried themselves with their gold. It did not travel well.
It's a finite list of exit options. And I remind business owners all the time. I mean, you have lots of experience in the M&A world. [30:00] What kind of business owner comes to an M&A guy to do a deal? One, he or she has had a major health event, scared the hell out of them, they get better but they’re terrified and they view their business and their own mortality in a different light.
R. Adam Smith: Right.
Thomas Deans: Or, they have three or four really bad financial years and they’re exhausted and scared.
R. Adam Smith: Right.
Thomas Deans: Do business owners who’ve had five record-breaking years go and sell their business? No. I hear that all the time. It's like, why didn't you come to me five years ago? We could have sold that business.
R. Adam Smith: Right. It is good to sell when things are going well and try to buy things when prices are down. So, it is a good point.
I just wanted to say a couple things. First, we're going to have Susan [Lindeque] come up on the stage here to speak briefly. And also, I wanted to thank Monika [Nadova] Kroslakova earlier for introducing us. So, Susan, [31:00] if you’d like to say a couple of things, I have you on stage.
Susan Lindeque: Tom, thank you so much for this session. I really found it insightful. We, as a family, have probably started to look at succession planning and wealth, generation wealth, probably about 10 years ago. And I had to come to exactly that conclusion because I was fortunate to have my children very young. And my oldest one had zero interest in real estate or venture capital. That was always my two main focus areas in my career.
And that made me sit down about probably 10 years ago and realized well, really what is wealth creation and what is generation wealth? And I absolutely love the concept that you said, and new technologies as well. And I think the fact that the world is constantly changing and it has over the last [32:00] hundred years and it will.
The fourth industrial revolution will not be the last that we see in terms of evolutions in the next hundred years. So, I found your message really insightful to say, well, it's not to say because you're the founder and create wealth that your children need to follow and just do exactly what you've done over the last hundred years, but to provide them with the freedom and the capital—which is sometimes the biggest obstacle in any business—to go and actually do their own or create their own legacy and create their own dreams or their own interests and what they want to do.
So, fascinating and just want to comment on that and say thank you.
Thomas Deans: Well, thank you. I really appreciate that feedback. And I would add one thing. Often the question that I get is, Tom, I think my children would buy my business. I mean, they're educated, they're hardworking. They love the business. [33:00] They show lots of enthusiasm. They've got lots of new ideas. I think they would do what you suggest. They would buy our business, but they won’t have access to capital. They have no money.
So, part of what I talk about and write about is this notion of a facilitated family meeting where families can talk about transitioning wealth prior to death. But when they do that, when they transition, let’s just pick a number. When they transition, say, $100,000, and they make a $100,000 living gift to the next generation and then say to the next generation, do you want to return that money to me and buy $100,000 worth of voting shares at full market value based on a third-party evaluation?
Here’s what’s fascinating. Most next generation don't do that. They'll take the $100,000 gift and either start a new business or deploy it in a different direction. It's been fascinating to watch that over and over and over. It's actually [34:00] the rare next generation who wants to take that gifted money and buy the shares in the family business.
R. Adam Smith: I agree with that, but I think that as transparency and governance and institutionalization and scale grows, I do think and hope that it will expand a bit.
Also, we have a new guest today: Savannah Berry Suttle. Savannah, you can take your mute off and join in a bit and ask a question to Tom.
Savannah Berry Suttle: So, I work with families when family dynamics are impacting business operations in a way that they would like to change. And succession planning is frequently, obviously, a topic of interest. It's going to come as no surprise to both of you that sometimes you have one child out of a group of children who is really entrepreneurially-driven, and then the other ones are just not built that way. And sometimes none of them are built that way, and that's part of the difficult conversation is explaining like, hey, I know you love your kids, but they don't exactly have [35:00] the business sense you were hoping for.
So, you know, to your point about transitioning, that has been one option of selling the business and transferring wealth. But another option that's come up is appointing a non-family CEO to actually maintain and run the business as then the family starts to transition into, I think to your prior point, a family office scenario where they are managing a portfolio of companies or ventures and they're starting to invest together as a family.
Could you speak to the pros and cons of that approach according to this philosophical paradigm?
Thomas Deans: It's a great comment. It's a great observation. One of the obvious pros is there's often a gap in age or maturity between the founder and the rising generation. So that interim solution of hiring an in-term CEO until the next-gen are old enough to step into leadership positions, that's a well-worn path. It’s a good strategy. But, [36:00] on the con side, the downside is, even if you're diversifying at the family, at the multifamily office level, or at the single family office level, diversifying your holdings and, let's follow this through, the founder dies—and they all do—in the fullness of time, there's still a concentration of wealth in an operating business. And the family are outside of that business, remember, because there's a third party running that business. The next generation just doesn't have that operational knowledge to provide oversight or governance of that particular asset. So, you kind of get to the same place where wealth is at risk.
See, my books and speeches aren't about creating more money. Families are really good at creating wealth. They are a disaster at keeping it. They're a disaster at protecting it and transitioning it. And part of it is because of the emotional connection that they have. And that's why they keep concentrating their wealth in these stocks [37:00] long after a sector has gone non-cyclical. It's out of favor, and they still cling to it. So, the in-term CEO or that third party CEO sometimes can buy time. It's not necessarily a bad thing, but in the fullness of time, it does not offer a complete solution.
R. Adam Smith: That's great, Tom. Thank you so much. And thank you for this very interesting, timely, and complicated topic today. I want to thank you for being our guests and also for our attendees.
Tom, I hope you enjoyed today. I think we covered a lot of ground.
Thomas Deans: We did. We didn’t even get into The Happy Inheritor, the third book. The subject is just so big and so massive. When you consider that $3 billion—$3 billion with a ‘B,’ that’s not a typo—$3 billion will be inherited today in the US. Three billion today, tomorrow, even Saturdays and Sundays, $3 billion, $3 billion, $3 billion. It is a staggering sum of money, and it is causing lots of chaos.
R. Adam Smith: Well, thank you for the number for a reference point. I do encourage you to [38:00] reach out to Tom on his website and LinkedIn and read his latest book on Amazon, which is really wonderful and insightful.
Thanks again, Tom. It's great to have you as a colleague and event guest. Really appreciate it.
Thomas Deans: Thanks, Adam. Thanks for having me.
R. Adam Smith: This is R. Adam Smith signing off. Stay tuned for the next episode of the Family Business Audiocast on LinkedIn.
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