A Family's Social Capital
What it is and how you can leverage it?
Today, we are going to dive into a family’s social capital. What is it? How can it be used? What is its role in antifragility? What activities positively or negatively affect it? These and some other aspects will be dissected in this article. I, myself, took a while to understand the power of social capital and how to use my family’s social capital to my advantage. I initially struggled with it, particularly as I did not want to accept my heritage (more on this in a future piece). It took a crisis for me to understand its importance and to leverage it. With this article, I hope to be able to show you how crucial it is and what you can do to make the most of it. What you can do to improve it and what to avoid.
What is Social capital?
Social Capital is a term that comes from macroeconomics and socioeconomics and has been applied to microeconomics also. According to Investopedia:
The term social capital refers to a positive product of human interaction. The positive outcome may be tangible or intangible and may include favors, useful information, innovative ideas, and future opportunities. Social capital is not held by an individual, but instead appears in the potential between social network connections between individuals. - Investopedia
If you try to imagine a business and how important its social capital can be. The better the relationships between the employees, the better the efficiency of working together. Better relationships within the company will help bring things to fruition effectively. Better relationships without the company with customers, stakeholders and suppliers will smooth things. Goodwill can go a long way in hard times and can be the difference between bankruptcy and restructuring. A company’s reputation and network are often the reason why it receives contracts or not. As you can see, an organisation has internal social capital and external social capital.
So, how does social capital apply to families?
Social capital refers to family members’ relationships with each other and with their communities. - James (Jay) E. Hughes Foundation
The way in which a family, its brand and its business interests relate to and engage with society and the communities in which it lives and operates. - Stonehage Fleming
If we view a family as an organisation, the internal social capital reflects the quality of the relationships between family members. While the external social capital reflects the quality of the relationships with the community around them. With community, everything outside the family is reflected. This will include their stakeholders, employees, the families of employees, governments, advisors, business partners, customers and suppliers and anyone else that your family has a relationship with.
How can Social Capital be built?
Building social capital often takes a long time. Often, it is linked to a family’s cultural capital. People we engage with will observe our behaviour. This is true for inside the family and outside.
The relationship of individuals and family social capital.
Before getting into detail, great family culture is an integral part of creating strong social capital. In the words of Warren Buffett:
It takes 20 years to build a reputation and five minutes to ruin it. - Warren Buffet
Every family member plays a role in building or destroying social capital. Some will not add anything to it, nor will they subtract from it. However, often we have someone in the family who, through their activities, greatly enhances the family’s reputation. The same is true for the opposite. A family’s reputation has a great effect on our personal reputation. And vice versa, our personal reputation will reflect back on the family. This is an important relation to understand in terms of social capital. If we are part of a collective or organisation, our actions influence the family’s social capital. At the same time, a family’s collective actions will influence our personal social capital. I find that many families do not put enough thought into this. And then there are some where this topic is over emphasized and has a crippling effect on everyone. Striking a good balance is important, and communicating clear boundaries within the family. Boundaries for both internal interaction and external interaction.
Which activities positively affect social capital?
There is a great long list of activities that a family can do to improve their social capital. Again, remember there is the internal social capital and then the external. Take a moment to ask yourself, how can someone else improve their relationship with you? What do you cherish? What are the behaviours of people you like? We are more likely to like people who act in a polite way towards us. People who are thoughtful in their interaction with us. People who remember important dates, like our birthdays. People who take time for us. In the end, we want to feel valued. The most powerful way to build social capital, both internal and external, is to mentor people. Mentor people in the family and outside the family. Not only as a mentor but also as a mentee too!
Positively affecting a family’s internal social capital
Now, if you reflect this first internally. Families who work on spending quality time together will build better relationships. In business families, it is often difficult to find time for each other. This is ok and part of doing business; however, when you do spend time with each other, make sure you are present. Lock away your phones for dinner. Simple things like having meals together, going for walks together, and the odd holiday together will carry you a long way. Try to be there for important events. You won’t make every football game of your kid, but every single one you do make counts. Be there for birthdays. Remember them. Be there for your parents’ doctor appointments if you can. Or at least call them afterwards. Think about the way you communicate with each other.
Some cultures may get into heated discussions. But you can be loud and stay polite. Also, you can fight and make up again afterwards. Remember the Losado Ratio, we need more positive interactions than negative interactions to equal it out. In work relationships, it is 2:1, while in marriages, it is 7:1. I would guess that in the famil,y you will find it to be somewhere between that. For every insult, we need between 2 and 7 compliments, just to reach neutral ground.
Positively affecting a family’s external social capital
Now, most of what I wrote above also applies to external social capital. The way we interact with the community around us is the basis of our social capital. How we behave outwardly will enhance or diminish our social capital. Polite and thoughtful communication.
The external social capital can be summed up as our reputation and our network. Quantity and quality play a role here. If our network is very small and not many people know us, we will have a small social capital. Unless the relationships have great quality. We can have a huge network and be known by many, but if these relationships do not carry much value, they might be worthless in the end.
Which activities can a family do to enhance their social capital? One of the most common is philanthropy of some sort. Sponsor your local football club or fire brigade. Give back to the community in some way. In a business, you may have an employee welfare program or an employee revenue share program. You can host quality networking events. We are so busy going to these events that we often forget we can host our own bespoke events. Something I have yet to do, but have been thinking about for a while now. I have been to some of these from other families, and it is those events that usually bring some of the best relationships. Getting the balance between quantity and quality right. Some families even participate in university case studies or are happy to be written about in books or newspapers. This is just a list of a few things. There are hundreds of approaches. Just remember, number one is how you treat people. Everything else is secondary to that.
Now, not all the activities you can do are the right fit for each family. Some will prefer to stay in the shadows and be relatively unknown. While some are happy to be in the limelight. And you won’t be able to do everything that enhances your external social capital.
Which activities negatively affect social capital?
If we want to make this short, it would suffice to say, do the opposite of above. However, I have found it worthwhile to spell things out, particularly the negative. Sometimes we may lack imagination or honesty with ourselves. So let me be imaginative for you and honest.
Negatively affecting a family’s internal social capital
Spend as little time together as you can. Being in your thoughts or on your phone while you spend time with the family. Be snippish, condescending and constantly nagging your family members. Feedback is solely negative, and things need to be better. Rather go and play golf or go to the spa than be at your kid’s football game. After all, you have to take care of yourself, and what else do you have a nanny for? Business is always first and family second. It is the family’s fault if they are not grateful for it. Your parents are annoying, and you have better things to do. Going to a party with your mates is more important than spending time with your grandparents or parents. You do not have time for people’s sensitivities, there is more important stuff.
I think this is quite enough to paint the picture. A family is a collective system of individuals. You need to strike a balance between individualism and collectivism. If you regress into one or the other, people suffer.
Negatively affecting a family’s external social capital
Ok, let’s have a go at this one. First of all, you do not care about your family’s reputation. Getting drunk at every occasion is your way to go. Being generally impolite to everyone around you. What is important is that you are feeling good. Also, money can buy you social capital. If I am impolite, I just tip more, simple as that. What has the community ever done for you? Why do we need to give back? The family worked hard to be where they are. Every relationship needs to have a purpose for you. Unless you can see the value straight away, you are disinterested. All you care to talk about are transactional topics. You do not have time for people’s sensitivities; after all, we are all grown-ups. Integrity is not in your vocabulary; you speak your mind all the time, especially about others.
Alright, again, I think this preview is enough to paint a vivid picture.
How can you leverage your Social Capital?
It may seem obvious to some of us why we want to work on our social capital. However, as I mentioned initially, it took me a while to understand this topic well. Before that, I would not have cared much about it. The key is to build our social capital in a way that aligns with our values and the family values. Often, the social capital you inherit will have been formed in the past and will reflect onto the present. And often you will need to reshape the capital in your generation. Depending on what you inherit, you will want to reshape gently, and sometimes it needs more radical approaches.
From my personal experience, there have been many instances where I could lean on my family’s social capital and on my own. For example, when we had a business crisis and I ended up managing this, I was able to call upon people in our network. Several mentors stepped forward, to whom I am eternally grateful. I could call people who had knowledge on topics and were happy to chip in with their opinions. After all, at the age of 25-28 you don’t really know how things work. Also, some simple things, like needing to transport something urgently. Who do you call? Who has time? I could call the logistics company that used to transport our timber for us. They organised a beaten old truck with one of their drivers who had entered into pension. It wasn’t pretty, but it got the job done.
People will also reach out to you, asking for support. You never know how you can help. I regularly forget how, for me, seemingly minor support can be a huge value for someone else. As an example, many years ago I let a friend use one of our holiday flats till he could find a flat. I forgot about this, but he remembers to this day, and will never forget. Often, it does not take much from you to help another.
If you actively search through your network for business deals, you will often find the best deals. Deals you can do together with others, in areas of their expertise. Deals you would never find or be able to take advantage of otherwise. You can get access to events and rooms. Or you will have knowledge transported to you, which is hard to come by otherwise.
What next?
Today, I believe we have managed to build a good foundation on social capital. I always like to get the foundations down before building anything up. After all, you do not build a house directly on sand either. In the next article, we will be looking into how social capital plays a role in creating an antifragile family and how you can position your social capital to be antifragile.