Bryn Monahan is a fourth-generation family member who worked with her cousins on an innovative way to learn to lead the family office: an investment company called 5/4ths. She talks about the origins of the family enterprise and the education of G4:
The origin of the family office
The original operating business was started in 1903 by my great-grandfather and his three brothers with a loan from their father. We consider the four brothers to be G1. They were in the steel fabrication business, and their two main products were railroad ties and piping to move oil around the country.
By the late 1970s, they felt that the two major areas of the business didn’t have the growth potential they had originally. The second generation made the decision to sell the business and focus on other things. The sale was to KKR, and it was one of their first investments. Today, I think of KKR as this giant in the private equity space, but they had to start somewhere – and one of the places they started was with buying a majority stake in my family’s business.
There was a lot of conversation and, initially, a lack of alignment about how to handle the proceeds of the sale. Our second generation put the proceeds in escrow for almost three years while they made some decisions about what they wanted to do. Ultimately, about two-thirds of the family decided to move forward with what is now our family office. The other one-third decided to take their individual proceeds and do their own thing.
The family office was born around 1980-81, when the family made the decision that they wanted to jointly keep the proceeds of the sale. No one was using the phrase ‘family office’ at the time. Most of the original investments were in real estate, with some successes and some not-so-great investments. Some family members continued working for the operating business – we did still own some of it, just not a majority. But over time, there were fewer and fewer ties to the original business.
Educating G4
In the late 1990s, the person who was our accountant – and today is the CEO of our family office – recognized that my generation, the fourth generation, didn’t have the same ties to the original business. We had no real reason to be in business together like previous generations had. He recommended to the second- and third-generation family members that they consider ways to engage my generation. There are 13 people in my generation now, but at the time there were five of us who were 16 or older.
They started a program for us: We attended our first family meetings and got some basic information that was way over our heads because it kind of came out of nowhere. We said, ‘We think this is really cool, but whatever you’re trying to stuff down our throats isn’t working.’ We suggested to them what we could do instead.
The cousin investment company
Over the next year, we started a cousin investment company that we called 5/4ths. The money came from a grandchildren’s trust – money that had been invested elsewhere was moved into the investment partnership.
The very first year, our investments were probably stocks like Disney, Gateway, and Best Buy. We learned about different types of stocks and then picked one from each category. We expanded from there into mutual funds. It gradually become more and more complex. We didn’t have enough money to do direct investments, though we did at one point invest in a couple of venture capital funds.
It served as a method to teach us about investing, to keep us together, to help us understand joint ownership, to have an opportunity to delve into family history, to give us a reason to meet with each other, and to learn about each other’s leadership styles. Eventually it was the mechanism to teach us about the family office, and a way to see which of us were more interested in the family office more generally. A couple of us emerged as quite interested, and we have now been sitting on the board of the family office for 10 years.
As my cousins turned 16, they could buy into the cousin’s investment partnership. We had a rule that everyone had to buy in equally. We wanted to be sure everyone had an equal share in our partnership because we knew that wasn’t the case in the family office. It was a very effective tool for a long time, but eventually we made enough money that it wasn’t feasible for 16-year-olds to buy in.
The cousin consulting business
Eventually, we sold that partnership and in 2018 started a small consulting business that is owned by my generation. It helps other families think about accounting and tax preparation. Part of its purpose is to provide some liquidity to my generation before we become full owners of the family office.
This business stemmed from what do we know, and what can we do? Our family office staff is really excellent at accounting – we have phenomenal people on our team who have spent a lot of time trying to understand the structures of family offices and family wealth. Some of our family office staff members are also on the staff of this consulting business. My cousins and I don’t manage the business, but we do govern it. Some of us are on the board, and we’re all shareholders and vote for the board members.
Benefits of cousins working together
It really has given us an opportunity to see how people work as leaders, and to get a chance to practice leadership.
We have had more practice with what happens when it’s not sunny and rainbows than most families do when they go into partnership together. That is invaluable, because it’s hard to get that sort of practice. We got to do that at lower stakes, so that when it officially is our turn and nobody from the older generation is involved, we will have practiced at that point for probably over 40 years.
Because my generation started working together pretty young, that’s really fostered connection throughout the family. Like any family, we have had challenges: people not liking the decisions, people who have smaller shares of ownership not feeling like their voices are heard. Because my generation is pretty close due to the work we did with the investment partnership, we have really wanted to maintain the family office and find ways to push through. Once, one branch of the family was thinking about redeeming their shares, and some of the cousins got together and said, ‘Let’s figure out a way not to have to do that.’
Transitions ahead
The family office currently serves about 45 family members. It’s relatively small for a family that has fifth-generation members — quite a few people either had only one child or had no descendants.
All the G3 family members are still alive, but they have been gifting us ownership of the family office for six or seven years now, so that we are actual owners of the family office, not just sitting around waiting for our parents to die. I’m really grateful because it gives us skin in the game now.
Now we’re at a place where the CEO of our family office, a non-family member, is contemplating his retirement. That’s one of the big transitions we’re facing. We’ve been planning it for a long time and making strategic hires so hopefully we can replace him from within. We also have two outside board members who are going to roll off the board, so for the first time in maybe 15 years we’re doing a search for outside board members.
I also sit on another family’s board, so I have been on the other side. I just went through that process to get onto that board, and now I’m engaging in it with my family.
