Oscarlyn Elder:
If you're a business owner, a chief concern is who's on your executive team. And you might hope to have family members helping you run the day-to-day business and perhaps lead the business someday, but don't wait to get started on the process for cultivating family members for roles in your business. That work begins when they're young. I'm Oscarlyn Elder, co-chief investment officer for Truist Wealth, and this is I've Been Meaning To Do That, a podcast from Truist Wealth, a purpose-driven financial services company. We appreciate you listening. This is the second in our series of episodes on running a family business. The first episode dealt with defining what a family business is and the goals of these businesses, which can involve more than revenues and profits. For this episode, our guest will discuss getting family members involved at an early age and how doing this can help identify meaningful roles in the family, even if they don't want to be involved in the business. If you want to take notes on today's episode, we have a worksheet you can download and print. You can find it by selecting this episode at truist.com/dothat.
My guest for this episode is David Herritt, head of Truist Wealth's Center for Family Legacy. David was with us on episode nine when we discussed navigating pivotal moments for your business. Welcome back to the podcast, David.
David Herritt:
Hello, Oscarlyn. It's great to be here again.
Oscarlyn Elder:
David, can you tell us about the type of work that you and your team do at the Center for Family Legacy?
David Herritt:
Of course, I always enjoy talking about our group. The Center for Family Legacy assists families in establishing a framework for more effective communication to try to help them minimize conflict and really building those teaming skills that they need to be better prepared for collaboration, for building consensus on the important decisions that they're going to be making around their joint assets. In addition, we're really trying to help prepare that next generation for life's roles and responsibilities by introducing them to our education process.
Oscarlyn Elder:
David, thank you for sharing what your team does and its incredibly powerful work. So we are really lucky to have you on today to talk about family businesses. David, your work involves a lot of discussion of purpose, which is an important concept here at Truist because we are a purpose-driven financial services company. And you discussed your purpose on episode nine. Can you remind us of what that purpose is?
David Herritt:
Yeah, so really the key tenet of my purpose is not letting being good get in the way of being great. I think too often, we become complacent and we're not really striving to be better every day. And that's really what I want to do, is make sure that I'm doing that in my life.
Oscarlyn Elder:
David, I've worked with you a long time, and I can attest that you have a phenomenal growth mindset, and you are definitely working on getting better and helping your team get better every day, so that purpose rings true to who you are, at least from my perspective. Let's turn the discussion and let's talk more, David, about the work that you do with business owners who have young children. What are some of the effective ways to develop the knowledge of children about the family business?
David Herritt:
Yeah. Well, we really want to introduce children to the history of the family business at a young age. There's a lot of benefits to helping young people understand the business at an early age, and so we've developed a number of activities that we enjoy doing with the younger family members. One of the things that we do is help them build dream boards. And so we get them large pieces of construction paper. We get markers and colored pens and glue and magazines and have them really take an opportunity to put together these dream boards on what the family business does, and it's just fun to see that. And then we have them present it back to the family. And when they do, the family can correct any misconceptions, they can talk about what the business actually does, and it really provides an opportunity for storytelling and really starting to get the children engaged in what the business does.
Many of our families also chronicle their family business history either through books or videographies. And so we read those books, we listen to the videographies, and we create games around it, games like Family Feud or Jeopardy, and the siblings or the cousins can play against each other in these games, but it's also a learning opportunity for them to understand more about what the family does. And I think it's also important to start to bring them on tours of the company, have them interact with the employees, see firsthand what the business does. I was on one of these tours recently, and one of the employees talked about how working in the company changed the trajectory of their lives and their family's life, and it was just so meaningful for these young people to hear that.
And sometimes just to make it fun, we'll also add a scavenger hunt or something alongside the tour. And then finally just getting them involved in summer internships, having them work in different parts of the company so that they can see what the company does firsthand because this really starts to give them that opportunity to understand, where can I see myself in the company in the future?
Oscarlyn Elder:
A couple of things are resonating. Number one, there's a deliberateness around the education process that we actually have to think about the process. Part number two, making it fun, engaging in the dream board, having the tours, but really creating an environment where the child wants to engage and feel safe opening up. And then a heart narrative as well, that having an opportunity to very intentionally share the family business narrative, the family narrative. And that really, it sounds like that builds a culture within the family that's connected to the business that hopefully that storytelling at the end of the day also creates interest within the children.
David Herritt:
Absolutely.
Oscarlyn Elder:
Is it common for younger family members to want to follow in the founder's footsteps? So I think in this situation... And I said founder, but I think it could be a multi-generational family business where perhaps there's a parent who's in the executive suite or highly involved in the business. But is it common for younger family members to actually want to move into the family business?
David Herritt:
Yeah. I guess my answer starts with “it depends,” and that may not be the best answer, but I think each family member's different, and each family member has different interests and passions in their life. And it's difficult to live somebody else's dream. And a lot of times, these senior generations cast a pretty big shadow, and the next generation is afraid that they're not going to be able to live up to those expectations that have been put on them by those senior generations and their success. And so when we think about that, there's often this expectation in the family that, yes, my child or grandchild is going to come and work in the business and they're going to have a leadership position in the business. And it all starts and ends with communication. And sometimes the expectations and actually what the other people want don't meet, and that can cause a real issue.
So back to what you were talking about earlier is that preparation. There's a lot of training that needs to be involved here, and mentoring opportunities when they're younger to help them get prepared for this, and also to be able to oversee and monitor, do they really want to be involved in the family business? Truist has a wonderful leadership program through the Leadership Institute. There's organizations like YPO, Vestige. Harvard has a leadership program. So there's a lot of ways to start to give them opportunities to learn and see if they do have the skill sets to lead the company into the next generation.
Oscarlyn Elder:
So, David, you mentioned communication specifically, and I'm interested to know, are there situations that come to mind where you've seen really positive communication make a meaningful impact, and/or conversely, families where communication was really stressed and you've seen that in the outcome as well?
David Herritt:
Yeah, so let me give you one positive example. We've been working with a family for over 15 years, and I've watched the evolution of how they've prepared one of their next-gen leaders. And they did all of the things that we've been talking about. They had them do internships, they had them be members of the board, and initially they had them just be on the board with no authority to make decisions. Then they moved them into a position where they were actual board members. They had them work in all different activities within the organization, each one of the branches of the work that they were doing within their company, and then lead those branches. And it was, as I said, a 15-year process. They interviewed other family members about whether the family thought that this was the right person. And it was just an amazing process, and now that person has ascended to the CEO position.
And so it was amazing to watch that. On the flip side, there's a family that we work with where the father had not communicated very effectively with his son around what he thought the future was going to be. He just retired and made his son CEO, and it started to destroy their relationship. And the father couldn't understand what was going on, and so we got them in a room and started to talk about what was causing this rift. And after about 10 or 15 minutes of just nothing, the son just blurted out, "I just want to be a salesman." And his father was like, "What do you mean?" And he's like, "I'm not good at running the business. I'm not good at human resources. I'm not good at managing inventory. I'm just really good at sales." And his father was like, "Well, why didn't you tell me?" And he was like, "Well, you never asked me, and I didn't want to disappoint you. You seemed so excited to put me in this position."
And so they actually went out together and hired a non-family-member CEO, and he went back to heading the sales group, and their relationship got so much better.
Oscarlyn Elder:
So, David, in that last example, what you're articulating there is that there were different expectations.
David Herritt:
That's right.
Oscarlyn Elder:
There wasn't communication among the stakeholders, among the parties, if you will, and that ultimately led to some tension. So when we think about expectations, again, I keep coming back to communication, but when we think about the expectations and how they can create tension, are there specific guideposts that you would point folks to, to help family businesses, to help business owners through the different elements of that?
David Herritt:
Yeah, and I think it's really understanding the difference between family and business. It's very hard to be wearing your mother hat one day, and then the CEO of the company hat the other day. And when you think about families, families are emotionally focused. They're inwardly oriented. They're resistant to change. They foster unconditional acceptance, and the goal is to nurture and develop self-esteem, where in a business it's rationally focused, outwardly oriented, constantly changing. Acceptance is conditional and based on performance, and the goal is to generate profits and promote those who develop competencies. So they're at odds all the time, and so managing family within a business structure can be very challenging.
And one of the ways that we've thought about how to help families avoid that tension is by setting up a family employment policy. So understand that this is a morally binding and not a legally binding document, but it stipulates the terms of employment for family members. It talks about how much education you need. Do you have to work outside of the family business for a number of years? What do starting salaries look like? How do you get promoted? And this puts everybody on a level playing field so that they don't come back and some point and say, "Well, why did Suzy get promoted and I didn't," or "Why am I not in a leadership position?" And so that really can help alleviate some of those tensions by just kind of setting that goal.
Oscarlyn Elder:
So it sounds like that's a document that outlines expectations and facilitates communication so that hopefully everyone has the same level of transparency and there aren't surprises.
David Herritt:
That's correct.
Oscarlyn Elder:
That sounds like an incredible tool. And so that, again, David, what did you call that?
David Herritt:
A family employment policy? Yeah.
Oscarlyn Elder:
A family employment policy is something that we would encourage business owners to think about if they are actively bringing family into the business.
David Herritt:
Yes.
Oscarlyn Elder:
Yeah, that's fantastic. Sometimes, even though an owner may want to bring family into the business, sometimes from a leadership perspective, the owner has to look outside of the business. And you just gave us an example of that a few minutes ago. Tell us more about that, and when you may see a business owner going outside of the family to hire for senior positions.
David Herritt:
Most times, it's similar to the situation that I talked about. Either there's not a desire to do that or there's not a skill set to do that. There's nobody in that next generation who they feel could take that leadership opportunity. And what you don't want to do is impact the business negatively because you're trying to force something to happen because you want a family member in there. And a lot of times, that's the case. And it can impact revenue, your profitability goals, and it can take the opportunity to kind of ruin the trajectory of the company. But I think one of the most important things that we see when you're out looking for a non-family member is to make sure that that person has the same culture, the same values as the family, because many times the family will still have employees, but just not in a leadership position, or board members who are family members. And you want to make sure that they are continuing to foster that mission, purpose, vision that the family had.
And when you're trying to do that, the family really is the connective tissue to the employees and the company. And if the employees feel like that's changing, that could cause you to lose some top talent and put you in a direction where you're not going to be as successful as you have been historically.
Oscarlyn Elder:
So, David, the takeaway there is if you're going to hire from outside the family for senior positions especially, you need to have values alignment with who you're bringing in because the family is usually still super connected to the business. And if you don't have that values alignment, that could create tension down the road. It could impact your business negatively, as well as your family potentially.
David Herritt:
Correct.
Oscarlyn Elder:
Well, David, this has been a great conversation about leadership at family businesses, and we'll have a lot more about this in our next episode in the series. Next, let's take a moment and discuss how introducing younger family members to the business can pay off even if they don't want to join the family business.
Some families don't just have a business side. They also have a side that's concerned with the business of family. David, I'm pretty confident I've heard you say that before. Help me unpack that statement. What do we mean by the business of the family?
David Herritt:
Yeah, so many of our families, in addition to the family business, have a broader scope, which is their family enterprise. And their family enterprise can include the family business, it could be a private foundation, it could be commercial real estate that they're managing. It could be a vacation home that they're managing. There's a lot of different ways that families think about their family enterprise, but it's all concerned with enhancing and sustaining the family's wealth through how they're managing these structures and having these activities. And so there are other roles that family members can play in the family. You can have somebody who plans the family meetings and the family retreat. You could serve on an investment committee. You could act as a trustee. Or if you have a legal background, you could help the family with their estate planning and tax advice. You could establish that philanthropic and community impact strategy for the family. You could serve on their family council. You could be the person who sets up their educational curriculum for the next gen.
And it was interesting because I was just at a family office conference earlier this week in Atlanta, and they had a whole session on family member well-being and how someone in the family should be responsible for the well-being of a family. And over the last six or seven years, we've seen more families in their purpose, mission, vision statements, talk about the importance of health within the family, physical health, mental health, emotional health, right? Because without that, the family can't be successful. So having someone who is responsible for making sure that's happening is becoming really important within our families.
Oscarlyn Elder:
And, David, when we think about overall well-being of a family and the resources that a family may have, it's much more than financial, and that's really what you're touching on there, right?
David Herritt:
That's correct.
Oscarlyn Elder:
I think your team has a framework to help us think about financial capital, human capital. I think there's another element to that, and perhaps it's intellectual capital. And it's almost within the human capital component that you also have this well-being thought that's coming up as well. And well-being has multiple levels to it potentially.
David Herritt:
Yeah, absolutely. And we've been talking a lot about the term wealth literacy. Every child needs financial literacy, right? They need to learn how to manage money for their 401(k). They need to learn how to create spending plans. As they start to become young adults, they need to know how taxes work, all of those things. However, there's the human part of it that's also important. How do you plan for college? How do you plan for your career? How do you think about how money impacts relationships with your friends, your family, your significant others? Why might you need a will or a healthcare proxy, or a living will or power of appointment? I know that we had a family who recently had a college-age family member get in an accident with their bike. And they were at the hospital and they didn't have a healthcare proxy, and they couldn't get any information on what was happening with the child. And so just helping them start to understand some of the life skills that you need to be successful helps prepare them for the future.
Oscarlyn Elder:
A lot of focus on preparation. There are multiple levels of preparation. There are multiple facets of preparation. And I think you said earlier, you talked about the family being the connective tissue in a family business, and I'm also seeing that there's other connective tissue that's bringing the family together and that, again, it’s multilayered and that everyone within the family can have a place, even if it's not within the direct family business. It's kind of this broader family enterprise where folks can plug in and help to meet the needs of the family as a whole, but then also the individuals within the family.
David Herritt:
Yeah. And as we talk about that preparation, even if you're not involved in the family business, you still may be a shareholder, right? And to be a good active committed shareholder, you need to make sure that you understand how the business functions and what you can do to help contribute to the success of the business. Maybe at some point, you'll be considered for a board position, right? So understanding how that works can be very important. And also I think one thing that's really important is thinking about how you might be able to help diversify the revenue stream for your family, right? If all of your family wealth is tied up in one industry, in one business, if you go out and create your own business, if you have a job that you're creating your own wealth, all of these things can help diversify that stream and actually make the family more stable into the future.
So there's these opportunities to think about how you can add value to the family without being part of the family business. And I think sometimes there's this push that everybody needs to work in the family business and everybody needs to be doing that because our growth engine, that's our private equity. But just like with investments, and obviously you know this better than anybody as our co-chief investment officer, diversification is also very important. And this is a way for the family to diversify. So I think that's something that families should consider as they're looking at this process.
Oscarlyn Elder:
David, what I'm hearing you say is, and we've talked a lot about the business side and now we're focusing on this greater family enterprise, but again, the same words are coming to mind for me, deliberateness, deliberateness, communication, the value of the entire family, and using everybody's skill set to really elevate the entire family, but being deliberate about the exposures and the plan to increase communication and increase understanding and take care of the entire family.
David Herritt:
Yeah. Think about it this way, Oscarlyn, you run your business without a mission, without organizational design, without a strategic plan, without a way to think about how you're going to hire and incent your top employees, having a succession plan. So why would you leave that to chance in your family enterprise? Right? Why wouldn't you take that same professional business approach to your family assets that are outside of the business? And that's one of the things we like to talk to our families about.
Oscarlyn Elder:
And it's especially important. I know as I've worked with multi-generational families that are connected to a business, especially once you get to the place where you've got a number of cousins who are working together, so the business has gone down at least three generations and you've got cousins who may be geographically dispersed, they've grown up in different households, they may have some values that overlap, but they may have other values that are very different. In that situation, to perpetuate the family culture, to perpetuate the communication and the overall health and well-being of the entire family, again, connect it back to perhaps this, I don't want to say single stream of revenue, but the enterprise, the business that has revenue and ultimately paying out to the shareholders. Again, the deliberateness around this is really important to the life of your family and your business and taking very specific steps to increase the communication, a very clear plan about how even the next generation and the next generation will become part of the overall whole is really critical.
David Herritt:
Yeah, I think you hit on the most important point, what we see is as generations get to the third generation, and then beyond, that kind of cousin consortium level and beyond, that's where the rubber hits the road. That's where it's most difficult to have that connectivity and to figure out how everybody has roles. Because if you think about generational mathematics and how many family members may be in that generation, there may not even be opportunities for all of them to have leadership roles in the company, depending on how large it is. And so finding their passion, their purpose and helping them effectuate that is very important, and that can help the family in so many ways that really has nothing to do with the success of the business.
Oscarlyn Elder:
David, I always enjoy talking to you about your work with families, and especially multigenerational families connected to a family business. And even though we all may not own a business, one of my key takeaways is that communication is critically important to reducing tension, making sure expectations are clear, and setting the path for the future. So I believe everyone can take away a key message from today's conversation.
Before we go, David, the first time you were a guest, you mentioned that your I've been meaning to do that item was to talk to your children about your Just In Case book, and your Just in Case book, I believe detailed an understanding of your family's assets and your wishes should something happen to you, and then just other important information that you felt like they needed to know. Have you had this conversation yet? And if so, how did the conversation go?
David Herritt:
So I have been having this conversation. It's not a one and done. It's multiple conversations, and I think they've been going well. My biggest takeaway, I think, is that I felt like I needed to communicate this to my children, which I did. But my wife was part of these conversations. And things that I thought that she knew that I assumed wrongly that she knew, she was like, "I didn't know about that. I wasn't sure that we had that." So I think for me, it was just the idea that maybe my communication wasn't as great as I thought it was, right? So as much as I teach about communication, I’ve got to make sure that I am doing that effectively within my family.
And one area that came out of this that we really need to focus on is that we don't have our kind of wishes around our funeral or our burial written down, and our children had no idea of what we wanted to do. And the last thing I want to do is burden them with those decisions at a time of great grief. So my wife and I really need to go back and not just write them down and let them know what we're doing, but also make sure that everything's paid for so they don't have to worry about where they're going to go to find money for this at that time. So that was a big aha moment for me.
Oscarlyn Elder:
That's really powerful, David. And hopefully your talking about it will inspire others to also make sure they're communicating with their spouses, with their family members. And then what you're talking about there, I think is an incredible gift to have those arrangements made. Because when someone passes away, there's such incredible stress typically within a family. Having lived through this myself when my mother passed away unexpectedly and there not having been any planning, you just realize the impact of that stress. And I had an opportunity. I was talking to a friend earlier this week whose father has some very difficult health challenges, and I was talking to her and I was like, "Here's a word of advice. Maybe start working on his obituary, because when he passes, there're just going to be a flood of emotions that you just can't predict and there are going to be all these things that you have to do. Anything you can do now to mark off of that to-do list will make it incrementally better when this happens." So I just think you're giving your family an incredible gift there.
Thank you for bringing that up because, again, hopefully that helps inspire others to think about it and to take action. Because thinking about it's not enough. What I'm hearing is that you're taking action on it. David, it is always a joy to have you on the podcast. Thank you for being such a great teammate and taking such great care of our clients. Just really enjoyed hearing your expertise about family businesses and the greater family enterprise. You're welcome anytime to I've Been Meaning To Do That.
David Herritt:
Thank you, Oscarlyn. I think one of the greatest joys of my work life is my interaction with you, so thank you for always supporting me and always being here for me. And I would love to be asked back to be a guest at any time.
Oscarlyn Elder:
I'm confident that you'll be back, most definitely. And for you listening, thank you for joining me today. Keep an eye out for the rest of the series in the coming months. If you've liked this episode, please be sure to subscribe, rate, and review the podcast and tell friends and family about it. And if you have a question for me or suggestion for this podcast, email me at dothat@truist.com. I'll be back soon for another episode of I've Been Meaning To Do That, the podcast that gets you moving toward fulfilling your purpose and achieving your financial goals. Talk to you soon.