John Michael (JM) Elder is president and chief investment officer of the Wellspring Family Group, his wife’s family’s family office. The family owns and runs Landmark Realty and Development Co., a real estate and development company based in Spearfish, S.D. He talks about how governance and wealth education help his family to focus on their true passion: philanthropy.
How are you approaching family education in your family office?
My father-in-law would be the first to tell you they didn’t raise their kids to be financially savvy. It was clear when capital from the family trusts started flowing that they didn’t confidently know what to do. They were looking for education on what to do, how to be responsible for this wealth, how to plan.
One of our responses to these questions was to take on a lot of those responsibilities via a team we were building inside the family office. We’re not trying to take away family members’ autonomy and ability to do these things, but there’s a tradeoff when we train each individual family and then they have to spend time on this work, versus having one person repeating the same work on behalf of each family in an office.
We also have three young kids in the fourth generation, so now we’re also thinking about education going forward.
A big piece of the education is to help frame family members’ relationship to the wealth. Before, for the third generation, it was like, ‘I’m going to act like this doesn’t exist.’ But you don’t need to act like it doesn’t exist just because you don’t know how to talk about it. If you get educated, then you can make really good decisions about your life and stewarding your wealth going forward.
How is the family office helping the family achieve its philanthropy goals?
The family is very faith-oriented, very generosity-focused. They were looking for help in efficiently doing philanthropy, as well as making sure that it was effective. One of our big aims is having a lot more follow-up in our philanthropic work.
Another goal — and this will probably move over time — is that we are going to immediately take 5% of any gain, and that will flow into our philanthropic arm of our business. (We still don’t know exactly what structure this charitable entity will be.)
Then, each individual family has the right to choose another 5%. Because of the faith component, the family believes in giving away 10% — tithing. What we didn’t want to do was take away the autonomy for the families individually to give. If they are trying to target a 10% generosity or tithe, they can give away 5% externally, to their church or wherever they want to. But our hope is that we are efficient and effective in what we’re doing internally and they feel the best way to give is to use the philanthropic arm of the business.
We will be using that money to leverage three different things. First is that we believe generosity has to start from within: to be generous to the people that work for us who aren’t part of the family.
No. 2 would be keeping funds available so that in case of some kind of disaster — like North Carolina and what they’re going through — we can quickly call our philanthropy committee together and say, ‘What’s the most effective way for us to give in this situation? Is it to go and put boots on the ground — to send a couple of family members or staff out there to aid? Or should we just give money where it can be most effectively used?’ We don’t want to see generosity just as writing checks, but it’s also putting our human capital to work.
Third would be more giving away of dollars, with tracking how effectively they’re being used. My sister-in-law has been in nonprofit management for a while, and so she will head up our team.
How do these philanthropy goals help with family cohesion?
Having, at the outset, a goal of philanthropy helps to keep everybody’s vision aligned. Having everybody’s eyes set on the work of generosity helps us to be on the same page about other things.
I think it would be easy to get lost in: What services do some family members want, and how much value is provided? But that’s secondary to: Are we giving effectively and efficiently? That’s what we’re truly focused on: finding ways to leverage what has been entrusted to us and stewarding it well. Working side-by-side toward a common goal, the other things become less important.
How is your family governance set up?
Governance was part of our early work. We could set up all these technical pieces — here’s how the investment dollars are going to go from here to there, for example — but if we didn’t have an idea of what we wanted the family office to be, we’re going to look back later and say, ‘We really should have spent more time designing this.’
When we decided on the C Corp., some natural pieces came with that: You have to have a board and shareholders. We have six shareholders — six family members. For us, a shareholders meeting is just our family council meeting.
The family council has just been the six family members from my wife’s family up to this point. Now we are looking at: What do you have to do in order to be able to make informed decisions? There’s kind of a rights and responsibilities piece: You have a right to sit on the council if you follow up with the responsibility of staying informed. We’re working on that right now. But it’ll land with a family council with representation from both generations as well as, in the future, at least one representative from each family unit.
That council informs our charter, which is basically our family constitution — which informs what the board of the C Corp then is mandated to do with the company. Right now, it’s just my two in-laws and myself on the corporate board, but we are working toward finding some external members.
