Feb 20, 2008
The Brittle Generation
By Lee Brower
Arthur T. Vanderbilt II recounts his history with great clarity in Fortune’s Children: The Fall of the House of Vanderbilt. As a teenager, his father Cornelius began the building of his empire with a small raft, charging fares for transporting goods and supplies, and eventually passengers, on the Hudson River. From this humble beginning, financed by a loan from his mother, he thrived. By the time of his death in 1877, the “Commodore,” as he was then commonly known, was the wealthiest person in the world.
Within thirty years of the Commodore’s death, no member of his family was among the richest people in the United States. Forty-eight years after his death, one of his direct descendants died penniless.
The real tragedy is not only the family fortune being lost to (and by) the Vanderbilt heirs, but the lessons and knowledge that produced the wealth had been lost as well. Here was a man who through ingenuity and shrewd business acumen, built a veritable empire from the most meager of circumstances. Yet, all the experience, wisdom, and knowledge he acquired was never transferred to future generations. The end result was a family unprepared for protecting and insuring the perpetuation of their wealth.
When 120 of the Commodore’s descendants gathered at Vanderbilt University in 1973 for the first family reunion, there was not a millionaire among them.
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The Brittle Generation
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This is exactly what happens in the vast majority of families that create great wealth. By the end of the third generation the wealth has been completely dissipated. It is so common that this cycle has turned into a proverb: “Shirt sleeves to shirt sleeves in three generations.” This brittle generation—the third—is, statistically, the final possessor of family wealth.
In contrast to the Vanderbilts are the Rockefellers, who have been extraordinarily successful in certain aspects of perpetuating True Wealth. Since the founding of the fortune 120 years ago, the Rockefeller family continues to successfully preserve its financial wealth. In the mid-nineteenth century, John David Rockefeller, Sr. created a fortune, developing and using excellent business practices. He had the largest fortune in America at the time of his death. Unlike the Commodore, however, Rockefeller, Sr. recognized that his only son had no interest in business. Instead of forcing his son to enter the family business, he allowed his namesake to find his own passion and explore his own dreams.
When financial wealth is present, there is tremendous pressure to have children follow in the footsteps of the family enterprise builders. If the “family business” has transitioned to a “business family,” certain professions are encouraged by tradition. If wealth is to persist, however, the child’s interests and strengths must be assessed, identified and encouraged. Ideally, this can be followed up with targeted education and mentoring.
Our research of family wealth has identified five phases of what we call “financial wealth ownership”: Strivers, Drivers, Thrivers, Arrivers, and Divers. Each stage has the potential for the development or loss of financial wealth, initiative and effort.
The Gateway Arch
If you’ve ever been to St. Louis, you’ve probably taken a trip to the top of the Gateway Arch, which commemorates the importance of the city in the settling of the American West. The Arch rises 630 feet above the Mississippi River and stands 75 feet taller than the Washington Monument. Visitors ascend to the top of the Arch by traveling on a custom-built tram that can carry forty people at a time. It takes four minutes to rise to the top of the Arch, but only three minutes to descend to ground level.
Phases of Wealth Ownership
Phase I—Striving
Strivers who begin their ascension along this arch may attempt, over and over again, to find the perfect vehicle, continuing to look for something better, something magical, the perfect “ride” that will scale the Arch of Wealth. They slide back down the left side of the arch, and attempt to move up it once again. Some spend a lifetime striving to find the perfect vehicles.
Strivers, however, also desire more; they reach out beyond the boundaries of Main Street in a quest to discover a vehicle that will transport them to a life of greater meaning and reward. That vehicle may be a new job, an education, or an entrepreneurial opportunity. In this stage, creativity and hard work combine with luck and the struggle of trial-and-error until there is finally a breakthrough. This can occur in a few years, or, in some cases, it can take generations.
At the end of Phase I, the individual fully understands that wealth starts with finding his or her individual passion and developing their Core and Experience capital. They have a broader personal and cultural perspective. Ideally, it should be the intention of every first generation wealth creator to honor and nourish that same opportunity of discovery, trial-and-error and development for every family member. The objective is to nurture each child’s unique gifts and abilities so that the child will not only survive, but thrive. Striving is a mandatory stage of growth.
Phase II–Driving
It is at this point that the individual can move up the left-hand side of the Arch to the Driving phase.
As families begin building their wealth, either through contracts or businesses, they reach a stage where they for a time feel like they have arrived. This interim phase is accompanied by the beginnings of surplus. They can pay their bills, travel in style, and move to high-class neighborhood. They begin to enjoy a sense of financial stability that might have eluded them during the Striving phase. They may not be satisfied, but they no longer have the financial pressures they once endured.
This is a growth stage. The wealth continues to grow. The originator is getting better at what he or she does and is consequently being rewarded for the value he or she is creating. We are now driving the vehicle that we believe will take us up the Arch—the perfect career or business opportunity.
We are halfway up the Arch and we have a sense for the first time that the top is within reach. What the “top” of the Arch means to one person might be different for another, but the feeling is the same: our vision is reachable. It’s an exciting time to be alive.
Phase III–Thriving
To continue further up the Arch, we must enter the third phase—Thriving. The younger Rockefeller, in his Thriving phase, was just as productive in creating systems of family governance and philanthropy as his father was in business. John Jr. set up a family office to manage the needs of his six children—one daughter and five sons. It is this system that is credited with the long-term wealth of the Rockefeller’s fourth, fifth and sixth generations. While its investment performance has been excellent generation after generation, its greatest value to the family is derived from its wealth of educational services.
Thrivers have learned a very important key: They know how to replicate their success and transfer that wisdom to others, so that the business and lessons learned from their experiences achieve a life of their own and will actually out live them!
Thrivers see the top of the Arch and ignore the possible downward direction that path will take them. Rather, they continue building and contributing so that they remain on a skyward-bound path that continues for generations.
For most families, this phase of wealth has differing periods of sustainability. Typically, as one generation passes on, the succeeding generations are less and less equipped to handle the wealth. Once Thriving wanes—or even ceases—they are obliged to reside in the stage that has a slippery slope down the other side of the Arch.
Phase IV–Arriving
When the fourth phase, Arriving, is reached, the wealth-creator attempts to replicate his or her own pattern. The individual actually believes that he or she as actually “arrived.” Frequently, the individual attempts to recreate “his” own pattern to make the other person (his offspring) more like himself, not by direct control but in thought, deed, dress and so forth.
This is where growing stops and dying begins. Without the robust energy created by finding one’s unique gifts and capabilities, the offspring are severely handicapped. This is where False Wealth resides. Many residents of Arrive base their success upon a financial scorecard only. Lottery winners or football players who sign their first contracts with the NFL sometimes believe they have arrived. These individuals go from a state of financial struggle to multimillionaire status literally overnight. Are they Arrivers or Thrivers? They are only Thrivers if they can actually replicate the wisdom of the experience that brought them their so-called success and transfer that wisdom to heirs and successors.
People who “arrive” in a hurry seldom have the benefit of the experience that comes from the striving, driving and even sometimes the thriving phases. Do you have to be financially rich to enter the Arriving Phase? By definition, you only have to stop creating. We now have third, fourth, fifth and sixth generation heirs of affluence who believe they are entitled simply because they had a Driving/Thriving ancestor.
The Arrivers have entered into survival mode. Instead of being in a state of abundance, they operate in a state of scarcity. They are not contributors, but takers. They do not have open arms, but rather attempt to wrap their arms around all of their possessions, like a starving, insecure hermit sitting at a table, protecting his meal.
People who receive a sudden influx of wealth without the knowledge of how to care for that wealth often find themselves in this survival category, lacking the confidence to replicate the success and abundance that was suddenly thrust upon them. They often don’t know how to contribute to society and are afraid to part with their wealth because they don’t know how to make it back. They follow rather than lead, copy rather than create.
Phase V–Diving
Without intervention in the Striving phase, the family can transition into the next phase—Diving. Absent a system to actually assist family members, to actually think and act like first generation wealth builders, future generations are left to their own devises. They must recreate from scratch their own success context. On their own, without the tools, motivation and foundation most individuals don’t succeed. This is a pattern that repeats itself over and over again throughout the world.
In terms of family wealth, the creators of wealth are the Drivers and Thrivers and their offspring are all too often the Arrivers and survivors who were born on third base and actually believe they hit a triple. These individuals coast downward, giving truth to the expression “Shirtsleeves to shirtsleeves in three generations.” Without the wisdom and experience gained in the Striving, Driving and Thriving phases, we could all be headed for a serious fall.
Surveys of lottery winners show that wealth not only failed to improve their lives, but actually destroyed their lives. The winners found themselves at odds with family members (many of whom they may have never met) who made demands to share in their newfound wealth.
Clearly, when it comes to the Gateway Arch, the best place to be is on the left side of the curve with the Drivers and Thrivers, instead of taking chances with the Arrivers and Divers. Those on the ascending side take a proactive stance toward life; they are building, growing, doing, creating and taking responsibility for their actions. Theirs is an attitude of empowerment. They are contributors. Those who see themselves at the top, and those who are careening down the right side of the Arch, are living in reaction and passivity. They do not make events happen, but are instead controlled by events. They seem to have an attitude of entitlement. They are the takers. They often lack the courage to shift back to the proactive side of the Arch.
Which side of this power curve do you want to live on, the proactive side or the reactive side?
You are at the center. As your life becomes transformed through understanding the phases of True Wealth, you will be able to radiate your values to your children, to your community, to your workplace and to generations far into the future. But, it all begins with you.
