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The Purpose of Family Wealth

Publication Authors: 
Tarek el Sehity and Heinrich Liechtenstein
Publication Year: 

Since 2012 IESE Business School at the University of Navarra and Liechtenstein Academy Foundation have organized roundtable meetings with leading families in business and finance to analyze and discuss the family governance issues that matter most to them. A recurrent question in these meetings relates to “the purpose of it all,” the reason for “the continued effort of staying together.” In consulting the literature, we found that most family business academics and consultants list “purpose” as one of the fundamental building blocks for the long-term strategic planning of families and their businesses but do not define their conception of purpose. This lack of definition has left it to the intuition of families and their advisors to develop purpose as they understand it, and their conceptions of purpose tend not to distinguish purpose from related concepts such as goal, aim, meaning, and function. A review of their purpose statements reveals that business goals (e.g., “to grow our business over the next five years by five percent”) are sometimes simply restated as purpose statements. This raises the question of whether purpose, as defined for research and educational uses, should be understood as anything a family states its purpose to be or be required to meet particular criteria. Are there any conceptual or theoretical guidelines to follow in the process of developing a family wealth purpose statement?

Literature in the field of corporate business offers some interesting categorizations of types of purpose. These categories cluster purpose statements according to the breadth of the groups’ interest captured in a purpose statement (e.g. “the company exists for shareholder interest only” versus “for the benefit of all its stakeholders“ versus “the future of the nation”). The only systematic study of the empirical effects of corporate purpose we’re aware of demonstrates a strong psychological relationship between a company’s type of purpose and employees’ firm loyalty and trust in management. This research suggests that the purposes driving families’ understanding of their wealth and related responsibilities must include a concern for the greater social interest if they are going to sustain long-term family unity and shared sense of direction.

Drawing on seminal studies by Bill Damon and his colleagues on the effect of purpose on youth development, our framing of family business purposes draws on parallel social and cognitive components, which provide a psychological explanation for why certain types of company purposes may have more significant effects on stakeholders than others. The core component of purpose of our scheme, as for Damon’s, is what Viktor Frankl first identified as the self-transcendence characteristic of purposeful agency, that is, the dedication of family resources beyond the immediate interests of the family.

It may well be that some family/business purpose statements fail to yield their potential positive effects, because they do not convey a true purpose but instead reference only goals, interests, and functions. In this presentation, we will review work in progress that aims to provide an analytic definition of family/business purpose with some clear-cut recommendations for how families can come to understand the purpose of their shared enterprise and wealth in the ways that will best support its virtuous role in fostering both family well-being and positive social impact.