Behavioral Science Sheds Light on Tricky Family Enterprise Issues
Jeff Kreisler, managing director and head of behavioral science for J.P. Morgan Private Bank, has come to his current job via stints as a standup comedian, an author whose books include “Dollars and Sense,” and a speaker and consultant for financial firms. He joined J.P. Morgan in 2020. In his current role, he helps with client communication and internal training focused on how behavioral science applies to family enterprises. He talks about the lessons families can draw from this work:
Why is a sense of fairness so important within a family enterprise, and how is fairness/unfairness measured in this context?
In family businesses that are created in G1, as you move down to G3 or G4 or beyond, the cohesion erodes. The No. 1 reason for that is a lack of communication: a building sense of misunderstanding, perhaps resentment, and often a sense of unfairness. Decisions are made and people don’t understand the reasons. When we don’t know why a decision is made, we fill in the blanks. But our interpretation isn’t always accurate.
There’s a great opportunity in this challenging situation. If people understand the process, the sense of unfairness is lessened. When people take the time to explain their choices, even if others disagree, the discord can be lessened in many cases — though it’s not a guarantee.
For example, say you are a parent with a daughter who pays her own way through medical school and becomes a success, and you never support her financially. Then you have a son who is a musician, and you give him $100,000 a year for four years to try to make it. The daughter just sees the outcome and will fill in the blanks about the reasoning — which can lead to bitterness and resentment. But if you can say to your daughter that you knew she had always taken pride in supporting herself and you didn’t think she wanted your support — but you were there if she needed you — the daughter’s feeling that this is unfair is lessened. Even if she doesn’t agree with the outcome, she understands that it’s not malicious.
What does behavioral science tell us about how to build trust and repair rifts among family members, especially those who are running a business or investing together?
This is something our field is trying to learn more about. Broadly speaking, trust is built on three pillars: honesty (are you telling the truth?), ability (do you know what you’re doing?), and benevolence (are you acting in my best interest?). The most important part is benevolence.
If you make a mistake in honesty — you don’t disclose something, but you’re doing it because you think it’s in the family’s or the business’s best interest — that can be overcome. If it’s a failure of ability — you took this on and you didn’t do it right, but you did it in the best interest of the family or the business — that can be overcome. But if you make a choice out of selfishness, whether it’s a success or not, that is likely to break trust.
When we try to flip what is often the negative view — how things fall apart — to how to keep families together, it’s by leaning into benevolence.
When there is a rift in the family, it’s important to address it immediately and not to wait. Think of a pebble that hits a windshield. If you wait, it grows into a massive crack. If something happens in the family, act quickly to address it. Lead with, ‘Let me understand your position.’ That is a way to start to repair the rift before it spreads.
What are some common challenges with group decision-making, and how are those challenges amplified when the group is a family?
Group decision-making and family decision-making on their own are very challenging — and when you bring them together, it compounds the challenges.
One issue is that there is often a loudest voice, or maybe a couple of voices, that either by structure or by default are the decision-makers, the ones to whom everyone defers. This can prevent everyone from sharing their opinions and perspectives. In good decision-making, you may not do what everyone says, but you at least listen to and consider what everyone says. In order to be successful over time, you need to be challenged, and you need to have new ideas.
When you are the loudest voice, make an effort to have others speak up first. Invite everyone to chime in, encourage healthy debate and dissent and play devil’s advocate, even on your own position.
What types of behavioral questions arise in business transitions, both for the principal of the business and for other family members?
Every business goes through a transition at some point: It’s sold, it goes to the next generation, it dissolves. Where people face the most challenges is when that transition is looming — thinking about what’s next. You can have the best deal on paper that’s going to set you up financially — but the question of ‘What do I do next?’ can slow people down.
Self-determination theory says that we all derive purpose from community, competence and control. Being involved with others is community. Learning and growing is competence. Control is straightforward. Most people have all of these in abundance when they run a business. Then you sell that, or retire, and how do you get those feelings — of community, competence and control — again? You can get pieces of each in what you do, but it’s not an instant thing, and you don’t have to know the full answer on day one. You’ve put yourself in the great position of getting to consider what’s next — take the time to do so with focus and compassion.
What should parents consider when deciding how much and when to tell their children about the family’s wealth?
This is a question that comes up a lot, and it is hard. It’s a wonderful opportunity to be able to give your kids, but there are so many financial decisions, tax implications, not to mention family and child rearing. If you move forward with clear intentions and goals, the children will be in the best position for success. To that end, parents should ask themselves a few questions:
- What do you want for your children generally, and how does gifting help them achieve that? Do you want them to be entrepreneurs, philanthropists, pay their own way, be happy?
- How do you think the gift will be received? Sometimes, a gift between generations might be received as control; opportunity might be received as a burden.
- How can you try to pair the gift with an expression of your intentions, your hopes and dreams?
Center your conversation with children on these questions and on your financial values and the purpose of wealth. Try to postpone discussions of the number itself. As soon as a number is shared, everyone’s mind goes to that number. They will pick up a phone or Google: What can I do with $10 million? Instead, talk about the opportunities, obligations and values you hope they embrace through intentional use of the family wealth.
It’s never too early to start talking about this. Obviously, you’re not going to tell a five-year-old that they have a generation-skipping trust. But you can say, ‘Our family believes in giving to others. This year for the holidays we’re going to donate $100, and you get to choose where it goes.’
It’s important for parents to accept that our kids aren’t going to do everything that we want. But we can ground things in intention and what we hope for as an anchor, and hopefully they won’t wander too far off. The only wrong thing to do is to try not to think about it or talk about it or ask these questions of them, and of ourselves.
