The life span of family wealth is generally short and most cultures have a clever expression to make just this point. In the US, they say: “A family goes from shirtsleeves to shirtsleeves in three generations.” The Chinese note that: “Wealth never lasts three generations.” Brazilians like to say: “Rich father, noble son, poor grandson.” India? “Peasant shoes to peasant shoes in three generations.”

No matter what language, the Three Generation Rule indicates that a family that becomes financially successful will lose its wealth within three generations. My research shows this same pattern for most families, but not all. Most families lose most of their wealth within two or three generations, but some defy the odds and continue to grow their wealth into the third or later generations. All good rules need good exceptions, after all.

The important question is how some families grow their wealth while others cannot.

No matter how your family wealth is invested—operating companies, stocks, bonds, real estate—to grow wealth, you obviously need to grow your assets faster than they are consumed by your family or by bad investments or wasteful spending by management. Most models we have tested show that families need to grow their assets annually at least at a 6 per cent real rate of return to stay ahead of financial decline. That may sound easy but it isn’t.

Why? Most family companies lose momentum by not rejuvenating their lines of business in a timely way, by not adequately growing family talent to serve the family company, and by not staying united as a family. Thirty years of field research has shown me that over time, most family companies sputter—and the families that run them fall apart.

It doesn’t have to be this way. My academic and advisory work has been devoted to helping families all over the world to beat the rather significant odds against survival; which I will address in the upcoming programme: Managing Family Businesses for Generational Success, India, scheduled in June, in Mumbai. The family in business needs to run its company in a smart, strategic manner, taking advantage of growth opportunities and industry trends and insisting on good long-term performance.

Grow every generation Given industry lifecycles, operating returns tend to wane over time as an industry matures and companies need to be ready for industry changes. We have every reason to believe that industry disruption and maturity will occur more frequently in the future. To maintain high returns for your company you need to make significant, well-timed bets to keep your family company competitive. Some bets regenerate your core business; other bets help you diversify or even move away from your original business.

Successful diversification requires vision, capital and backing by the owners. A good example of this is Riju Jhunjhunwala, who is leading strong growth at Bhilwara Group by venturing beyond textiles into energy. I wish I could tell you that multi-generational survival is just a matter of growing your company fast enough. It’s not that simple. A family must also produce the family talent it needs to properly run its enterprise. Families can’t build an enterprise alone. They need non-family managers, independent board members and advisors to supplement their skills. But families cannot abdicate all leadership to non-family. At a minimum a family needs to produce many good owners and some good board members to guide the company. Ultimately, a business family also needs to nurture one or more wealth creators per generation.

You can hire all the non-family MBAs you want, but it usually takes a family member with the support of the family owners to make those risky bets in new businesses and product lines that keep a company growing.

Build family unity The family must also stay reasonably united across generations. Big rifts among owners and nasty divorces can weaken a family and greatly reduce its assets and returns. I don’t advocate keeping the family business intact when there are fundamental disagreements over a company’s direction. When differences cannot be bridged, execute buyouts in a way to maximize the momentum of companies and the future growth of family assets. Often, family leaders who disagree or whose interests diverge can create much more wealth apart than together. The Ambani brothers are one of the world’s best examples of a productive split.

My mantra? “Growth, Talent and Unity.” Together these lead to success. Anything short of that leads to decline.

(The writer is faculty chair of the Managing Family Businesses for Generational Success: India, a Harvard Business School program.)

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