Generational Success Through Family Governance

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Stacie Jacobsen: [00:00:00] Thanks so much for joining us today on The Pulse by Bernstein, where we bring you insights on the economy, global [00:00:15] markets, and all the complexities of wealth management.

On today's show, we're talking about family governance and the importance of creating a framework to oversee family resources and reinforce shared values.

Governance establishes a sense of meaning for all family members by [00:00:30] creating a transparent structure that addresses both the opportunities and challenges of wealth for many generations to come.

I'm very pleased to have our guest, Molly Heaney, who can personally speak about the benefits of implementing a family governance structure.

But before we [00:00:45] meet Molly, let's take a pulse on the market. 339,000. That's how many jobs were added at US businesses in May.

Once again, the labor market surprised analysts to the upside, and you might ask yourself, so where is this [00:01:00] recession everyone is talking about?

Particularly if you find yourself in the middle of a crowded airport this summer, well, on your way to a not so cheap hotel room.

Well, first, the details of the non-farm payrolls report were not as strong as the headline number would suggest.

More [00:01:15] broadly, there is a lot of unevenness under the surface of the economy with manufacturing lagging and though the consumer remains relatively strong, leading data suggests some slowing.

Along with the fed's rate hikes that are working their way through the system this all [00:01:30] adds up to our mild recession base case.

So what are you to do in this type of environment? Well, intermediate bonds are still an attractive option, both for clipping the now higher coupons in for the potential price appreciation.

Once the slowdown arrives and the [00:01:45] fed begins to reverse course on rates. Now onto today's show.

First, what exactly is family governance? Well simply put, it's a framework for communication and decision making among families with shared wealth.

It is often [00:02:00] implemented through various documents and systems that guide wealth transitions along with a family's shared values. Now, many of you may be familiar with the hit HBO Show Succession.

The Roy family, well, they provide a great case study of a family who did not, but certainly could [00:02:15] have benefited from a family governance structure to help guide their value setting and decision making.

Now, our guest today, Molly Heaney, provides a perfect counterpoint, the successful implementation of a solid family roadmap.

Though not [00:02:30] a Bernstein client, Molly is a director of the corporate board and a family board member of Huber, a 140-year-old firm, which makes a variety of consumer and industrial products, and it's now in the sixth generation of family ownership. [00:02:45]

It was about 40 years ago as Huber moved from a third generation to the fourth that it was decided to put a governance structure in place.

So how do families know what level of governance they need when done well? It can provide benefits to [00:03:00] families looking to steward wealth for multiple generations.

So, what are some of those benefits and how should families think about evolving their structures to stay relevant? We'll answer these questions and more right after this break. Stay with us. [00:03:15]

Clare Golla: Hi, I'm Clare Golla, host of Bernstein's Inspired Investing, a podcast for those involved in the nonprofit, philanthropy, and broader social sectors.

If you've ever wondered what other donors are doing, then I have an episode for you.

Derek Jernstedt, who runs his [00:03:30] family foundation, takes us through three generations of learning and change. Listen to inspired investing on your favorite podcast platform.

Stacie Jacobsen: Welcome back to The Pulse by Bernstein.

I'm here with Molly Heaney, director of the Corporate Board, and a family board member of Huber, [00:03:45] and right after my conversation with Molly, we'll be joined by Emily Neubert, director of Family Governance here at Bernstein.

Hi Molly. Thanks so much for being on the show today. Look, let's start with your family.

Can you give us a little bit of a background on the Huber family governance structure when [00:04:00] it was started, and how did your family really know it was time to put a formal structure in place?

Molly Heaney: Yeah, it's such a, a good question.

I've been thinking a lot about this lately. So we put a formal family governance structure in place, really at the transition between our [00:04:15] third generation and our fourth generation, and that was in the early eighties.

And I would say, kind of the driver of our recognition that we needed a family governance structure was just, the family had grown so significantly in [00:04:30] size that it wasn't automatic that a family member was necessarily holding a position in management or holding a position on the board where there was that kind of direct communication with the company baked in.

And so we realized that we actually [00:04:45] needed to design a structure and process so that the family felt well connected to the business and vice versa.

Stacie Jacobsen: That's such foresight. About how many family members were there then?

Molly Heaney: That's a great question. So, in the third generation there were nine, and in the [00:05:00] fourth generation we went to almost a hundred.

So, a huge swing, and that includes spouses, but I think there are 89 members of the fourth generation.

Stacie Jacobsen: And what's your role now?

Molly Heaney: I'm in both corporate governance [00:05:15] and family governance.

So, I serve on our corporate board, and we have a portfolio company, so we have a corporate board and then three subsidiary boards over each of our business units.

And then in family governance, I'm on our education and development committee. I've been in family [00:05:30] governance since 2007. So, I've chaired our family council board.

Um, I've done a number of different things, but currently I'm on our education and development committee.

Stacie Jacobsen: Can you expand a little bit? What specifically does that committee do?

Molly Heaney: Certainly. So, education and [00:05:45] development is in charged broadly with kind of educating and developing both. Individual family members and the family at large.

So, we think about how we can help the family be kind of better informed and empowered owners of [00:06:00] the company. We, in January of 2020, put together a weekend.

We called it Huber University, and it really was an opportunity for family members to learn about all of the things that Huber does.

We had kind of a finance [00:06:15] 101 for family members so that when they get the annual report, they feel kind of empowered and sufficiently educated to be able to not only read it, but be able to ask meaningful questions.

Because you know, those of us that are involved in it every day can [00:06:30] really understand and appreciate its value, but it's important for the whole family to continue to buy into the investment. You know, it is, it is a significant investment.

We put a lot of work into it, but I think when you take a step back that [00:06:45] you realize that all of that effort means that, you know, we're still a six generation privately owned family business.

Stacie Jacobsen: Which I'd just like to point out is very unique. You don't typically see a six generation privately owned business.

Molly Heaney: [00:07:00] That's right.

Stacie Jacobsen: Okay. And for our listeners, what generation are you within the family?

Molly Heaney: I'm in the fifth generation.

Stacie Jacobsen: So what were some of the requirements to become a board member? Could you just raise your hand and say you were interested or was there an election process?

Molly Heaney: So on the family governance side, it [00:07:15] really is driven by interest. So if you raise your hand and say, I'd like to participate, then we let people come in and I actually was encouraged by my mom and one of my uncles to join, um, which I'm glad.

I didn't [00:07:30] ever think that I was gonna get involved in anything to do with Huber.

And they gave me a little nudge and the rest is history.

Stacie Jacobsen: Oh, fantastic. So when you think about your family now, there are six generation members, right?

Molly Heaney: Yes, there are. Yeah. Little. They're little still. But yes, [00:07:45] they exist.

Stacie Jacobsen: And so now there's just about 300 members, I'd imagine. Um, I mean, I can't even think of my own family, and I know there's a lot of members out there, but I know a very small percentage of them.

But when you have a family governance structure and a [00:08:00] family company with shared wealth, how is it that you all communicate with each other? I mean, I'd imagine going both directions is really important.

Molly Heaney: Yeah, I mean, I think communication is one of the kind of fundamental underpinnings of family governance and [00:08:15] why you do it to begin with because you're trying to keep this group kind of connected with each other and connected to the company.

So, and we have so many methods of communication. Um, we have coming up in just a couple of weeks, we have our big, [00:08:30] annual meeting and it is both a shareholder meeting and then what we call a family council meeting.

So, the kind of family convene to talk about family governance matters. Um, and we always try to hold it someplace fun.

We reimburse travel for family [00:08:45] members to go there, because we really want it to be an annual point of connection.

But then in the interim, I mean, we have our own website, we've got a quarterly newsletter, lots of email communication. It's a big [00:09:00] job to stay all connected with each other.

Stacie Jacobsen: And Molly, if there is a specific topic a family member would like to share, whether it be celebratory or a grievance, how is that addressed?

Molly Heaney: I mean that that is one of the charges of our [00:09:15] family council boards.

That's kind of the presiding body over a family governance is to kind of stay in touch with the family at large and to ensure that we know issues or concerns or just points of interest that family [00:09:30] members might want to raise or that we want to make sure that we discuss.

And so, it either will become an agenda item or just something that the family council board takes up and discusses amongst themselves.

Sometimes they're sharing between our family [00:09:45] council board and our corporate board, just to let you know the company know that there may be an issue on someone's mind.

That's when governance is working well, that when we use those channels to communicate with each other.

Stacie Jacobsen: You know, and you had mentioned new spouses and the littles and the sixth [00:10:00] generation. How do you welcome new spouses into the family mix?

Molly Heaney: So we actually, in the fifth generation, started a newlywed weekend where, and we've just had one, I mean, our fifth generation is still, [00:10:15] I'm actually the oldest fifth generation family member, and I'm 42.

It's kind of skews more to twenties and thirties. So, we're still in the um, kind of, getting your significant other phase, but we've had one newlywed weekend, which was just kind of a crash course [00:10:30] weekend on all things Huber, and it was meant to be welcoming and I think it really was.

It's overwhelming, but hopefully by, I know that those that participated felt like it gave them a good at least foundation of [00:10:45] information to then comfortably come to other meetings.

And, and not feel completely overwhelmed.

Stacie Jacobsen: You've talked about the large expansion of the family over the six generations and the fact that the governance structure was first [00:11:00] initiated in the eighties.

I would imagine that had to evolve over time. Right. How do you keep governance structure relevant with an ever-expanding family?

Molly Heaney: Oh, it's such a of the moment question because we're actually in the midst of a restructure and um, [00:11:15] we were just on a call yesterday and one of our fourth gen family members who's just being kind of a terrific mentor through this process was like, just remember like.

This is an evolution, not a revolution.

Like it's not, this shouldn't feel so earth shattering [00:11:30] that we have to think about redesign because governance is dynamic and the family is changing.

As you said. It's growing. Our needs are changing the ways in which people can participate is changing.

And we've gone through many iterations and we are [00:11:45] on the cusp of a change right now because the fourth gen is kind of moving out of leadership roles and the fifth gen is moving into them, and we just need to kind of think for the future and how we can make this structure still be sustainable.

Stacie Jacobsen: All right, Molly, you [00:12:00] mentioned that you are a director on the corporate board as well.

How do you or your family think about the family governance board and the corporate board, and are they separate and distinct, or is there any interaction?

Molly Heaney: So they are separate and [00:12:15] distinct with a real kind of explicit recognition that communication between the two is a benefit to both.

So, intentionally in every board meeting [00:12:30] we have a shareholder corner part of the agenda where we talk about kind of shareholder and family issues.

And we also as a corporate board, designate one board member and, and it's actually been an independent, so non-family board member to [00:12:45] serve as what we call a shareholder liaison.

And one of their kind of additional responsibilities is frequent communication with members of family governance, just to make sure that the board is kind of well apprised of, of what's [00:13:00] going on in the family and then, and vice versa.

Stacie Jacobsen: All right, so we were talking about earlier the benefits of the, um, governance structure for family cohesion, the annual meeting, but it's also really important in decision making, right?

Especially with that many different [00:13:15] opinions and voices. Is there a time that you can think about when it's really benefited your family to help move through what might otherwise be choppy waters?

Molly Heaney: Oh yeah. I mean I think that governance in general from a, on a family governance [00:13:30] side is really kind of an ounce of prevention is worth a pound of cure.

You know, it is anticipating those challenging moments so that they don't become really challenging.

One recent example was when we were going through [00:13:45] our most recent selection of, of family director onto the corporate board. It was, um, we had three appointments kind of back to back and I was the first fifth generation family member to go on.

And by the time we got [00:14:00] to the third seat to fill, it was becoming clear that it might actually be a fifth gen again, that all three seats were going to be taken by a fifth gen family member.

And there was this moment I think of kind of collective [00:14:15] realization and pause in the family, like, oh gosh, are we actually going do this?

Are we, are we giving up all fourth gen seats?

And so family governance convened a meeting, um, to, for us to revisit kind of [00:14:30] our selection process, our selection criteria, um, and really to give an opportunity for the family to reeducate themselves on what we had decided, which was that we shouldn't pay attention to generation or actually branch when it came to [00:14:45] representation, but also to ensure that if there was a big problem, that we were taking the time to address it before somebody got appointed.

And then there was just, you know, outrage had it not been for a family governance structure that's kind of [00:15:00] looking out and kind of kind of taking a pulse of the family.

That wouldn't have happened, and the outcome probably would've been the same, but the feeling within the family would've been very different.

Stacie Jacobsen: I mean, again, the foresight that your family had some 40 years ago to [00:15:15] implement this type of structure has continued for many generations.

Molly Heaney: Yeah, yeah. And we are real beneficiaries of it, I have to say. It has benefited us in so many ways to have this in place.

Stacie Jacobsen: So what do you think is important for other families to [00:15:30] know who are thinking of implementing a governance structure?

What could they learn from, from what you and your family have gone through?

Molly Heaney: I mean, you know, I think it is, it's a lot of work and I think the idea of doing it sometimes, especially when things are [00:15:45] okay, can feel like, is there a point to it? You know, is this just governance for governance sake? Um, but it is, it's heading off those big issues.

I think that is, just so critically important.

And also, [00:16:00] you know, believing in, I think those of us that are owners of a shared asset, like a business you hopefully have a belief that it's your shared ownership is valuable and that you are delivering something to [00:16:15] the company by hanging together as an ownership group.

And, staying together and staying cohesive and staying engaged takes work.

You can't just leave it to chance. And so, you know, making the [00:16:30] time and taking the, the effort to think about governance and, and put it into place, I think is just, is so worth its while and, and hopefully will be a benefit not only to the family, but to the company.

Stacie Jacobsen: Yeah. And I know you just used the word lucky, but I would just [00:16:45] like to enforce the commitment level that it's taken from your family. Right.

You guys have worked really hard at this and you've been, you know, been able to reap the benefits of it, but only through the hard work that your family's put in for many generations.

Molly Heaney: Well, thank you. It's worth it.

Stacie Jacobsen: You know, I think that's a great [00:17:00] place to wrap up this conversation. Molly, thanks so much for joining us today.

Molly Heaney: Thank you.

Stacie Jacobsen: I'm here with Emily Neubert, director of Family Governance at Bernstein. Emily, thanks so much for joining us today.

I just had the [00:17:15] opportunity to speak with Molly Heaney, where she shared the work that her family has put into maintaining a family governance structure and the benefits of having this cohesive family with nearly 300 family members, which to me is quite impressive.

But you have spent [00:17:30] almost the last three years releasing a series of papers, uh, and family governance. What was it that was the impetus for this?

Emily Neubert: So I think this work really started years ago at Bernstein with our family engagement group [00:17:45] and our focus on helping families align on a set of shared core values that ultimately help the family ensure their wealth is used in a way that reinforces a shared purpose.

But when families are looking to steward wealth [00:18:00] for multiple generations, they need a framework for guiding how they communicate, how they make decisions.

And how they resolve conflict, and that's where family governance really enters the picture. And helping these families was [00:18:15] really the motivation for writing the papers and doing the research.

Stacie Jacobsen: You know, Molly had mentioned that her family implemented this structure nearly 40 years ago. When do you typically see a family start to look into a family governance structure? [00:18:30]

Emily Neubert: So if you think about families in the early stages, uh, the communication and the decision making is often casual or informal, can happen around a dinner table.

But then as children grow up, they move [00:18:45] out of the house, they have their own adult lives, it becomes increasingly important to be more intentional about how the family's communicating and making decisions.

So oftentimes we see families start with more [00:19:00] informal governance, so they have these conversations, they're able to make decisions together, but when the family continues to grow and you hit that G three G4 pivotal moment, they really need to start formalizing or codifying a lot of times some of the things they've been doing [00:19:15] already, but creating more formality behind it and being able to communicate that to the broader family as it grows exponentially.

Stacie Jacobsen: So let's dig into the process a little bit for family governance. Where should a family start?

Emily Neubert: So families really need to [00:19:30] start with outlining those shared values, what are going to be the guiding principles for the family, how they're going to work together and what they're really working towards.

And then from there, it's about creating a framework or a [00:19:45] structure behind how do we communicate and how do we make decisions?

How do we continue as a family to. Build bonds, build relationships.

Um, and that really comes to light in the family meetings. And then it's really how do we educate the rising [00:20:00] generation as they come into play and want to take on some of the responsibilities that go with managing family wealth and stewarding family wealth.

Stacie Jacobsen: Yeah. You know, and you hit on this a little bit too, but the amount of work that it can take in order to implement the [00:20:15] structure is not insignificant, and I'd imagine it really has to meet that family's needs.

So how do you advise families to customize a structure that's specific to them and not just a boiler plate that they may find somewhere?

Emily Neubert: Yeah, family governance is definitely [00:20:30] not an off the shelf product. Families do need to invest some time and some effort and get buy-in from the broader family to. Put a structure in place that is customized for their family.

Every family is different and every family [00:20:45] has its own complexities and its own personality and its own makeup or structure of it.

But then I always go back to, it still has to evolve because it's going to, as you establish it, it's going to fit the family at that time.

But then families shift over time and so re [00:21:00] reassessing or getting that constant feedback loop for families on how the governance structures are actually working is so critical to the success long term for a family.

Stacie Jacobsen: Yeah. Molly highlighted a phrase from a fourth generation mentor that it's an [00:21:15] evolution, not a revolution.

Emily Neubert: Yeah. Their family is such a, a key example of how governance should really work and can really work as your family grows to that 300 member mark and incorporates so many different generations.

Stacie Jacobsen: Now, I know an [00:21:30] area that's near and dear to you at this moment is that evolution of a family governance structure.

So what is it that you would advise families to do that are realizing that the structure that they may have had in place a few generations ago isn't as relevant as [00:21:45] it is today?

Emily Neubert: So I think the regular revisiting of the governance structure and even the family values is critical to this process. Are these still the values that represent us as a family that are guiding our decisions that are.

You know, weighing on how we live [00:22:00] our lives, maybe there's been a shift in the assets that we're managing, or maybe there was a business sale, or maybe we are looking to set up a family office now because our family has gotten to that point.

So it's really just assessing where the family is, where we've come from, and [00:22:15] does it still make sense?

And I think through that process, It enables families to make sure that every generation is having a voice in the conversation.

So it's critical for the more senior generations to hear from the younger [00:22:30] generations and vice versa.

Stacie Jacobsen: You know, we use that word evolve in multiple generations and with more generations there's more voices.

And I'd imagine there's, uh, often conflicts within family.

Have you been involved in any situations where you can really lean on the family [00:22:45] governance structure to use as a guide to resolve family conflicts?

Emily Neubert: So the first thing I wanna say about conflict is that it's not necessarily a bad thing.

Conflict oftentimes leads to deeper discussions and new ideas when it's managed [00:23:00] productively. So that's the key.

And I think when there's a lack of governance in place, families can get stuck. They think there are landmines or topics they don't wanna bring up. They rely on assumptions versus having an open dialogue.

And [00:23:15] so, families just stop working together and they stop making timely decisions.

And so governance can really play a critical role in this by providing that forum for open dialogue and a framework that includes all the [00:23:30] voices in a family so they can either get unstuck or before the situation gets worse.

The other thing I wanna talk about is just active conflict. And I think about a family that.

They had some informal governance in place [00:23:45] and there was a moment when G three was making the decisions and one member of G three went and made a couple solo decisions that were to the detriment of the family financially.

And so the rest of the family in G three. [00:24:00]

They stepped back and they said, do we want to continue as a family? And they did. And so, they made some financial sacrifices to set the rest of the family, the future family up for success.

And from there they realized that was the impetus [00:24:15] for we need to really formalize what we're doing to avoid this sort of thing from happening again.

Stacie Jacobsen: That's such great insight. So, how should people think about using Bernstein and your research as a resource when it comes to implementing a family governance [00:24:30] structure?

Emily Neubert: You know, I've mentioned it a couple times, but I think true success really starts with defining those deeply held set of shared values.

So, our partnership with our clients can really start there and helping facilitate the dialogue around how do [00:24:45] we articulate and define what those values are.

And then beyond that, there's a lot of ways we can partner with the different families we work with.

So, whether that's crafting a mission statement, or organizing and facilitating family meetings, or helping create a [00:25:00] family constitution, ultimately our role is to listen, hear what the family's trying to achieve, and then create a roadmap that outlines a clear process for how the family can achieve its goals.

Stacie Jacobsen: All right. Well, Emily, with that, [00:25:15] thank you so much for all the work you've put into this subject over the past three years, and thank you for joining us today.

Thanks, Stacie. Thanks to everyone for tuning in. Make sure to check out our show notes for links to Emily's research. You'll hear from us again in two weeks [00:25:30] when we'll talk about the importance of end of life planning and preparing your family for wealth transition.

Don't forget to subscribe to the Pulse by Bernstein wherever you get your podcast, to ensure you never miss a beat. I'm your host, Stacie Jacobsen. Wishing you a great rest of the week. [00:25:45]