The Four Capitals

Just like pillars that support a strong building, there are four kinds of capital. Your family decides how to use its resources in each of the Four Capitals to maximize the chances of success of your future opportunity.

All capital is convertible. That means you can grow wealth as one kind of capital, convert it for storage into another kind of capital, and deploy it in another form if you need to.

You need to nurture and develop all Four Capitals so your family can increase the odds, of not only growing wealth through several generations, but also growing it at a rate that will keep up with the exponential growth of your family group.

Wealth is made up of these forms of capital—financial, human, intellectual, and social. This is the order in which I rank them for gearing power, but the best way to remember them is by using the mnemonic FISH. It’s so easy, in fact, that you can teach it to small children and teenagers.

Four Capitals of Family Ecosphere

Financial capital includes money, real property, and all other kinds of negotiable instruments, like stocks, bonds, debt, foreign currencies, trusts, and other financial contracts. Most of the assets in this class are easily valued. Focusing on growing these assets is, essentially, all about making money.

You’ll need financial capital for starting Future-Forward projects.

You need to grow nurture all Four Capitals so that your family can increase the odds of growing wealth through several generations at a rate that will keep up with the exponential growth of your family group.

Human capital produces the work that creates and builds your wealth. You’ve probably heard of “sweat equity.” Sweat equity is human capital. To grow wealth for your family, you need to manage human capital, both inside the family and out.

Talent is the basis of all human capital. We value work by talent and scarcity. The level of your talent is measured along with how common it is to produce work that can be valued in any given context. Professional sports and Olympic competition give the best examples. Talented athletes in these elite circles win medals and get contracts. Contracts can be valued as financial capital.

Take a look at people developing their talents. Do you notice that you tend to group them by their roles? This is natural. But there can be pitfalls when you focus too much on existing roles when developing or assessing talent. Let’s take Thomas Jefferson as a case example of these pitfalls. Jefferson is widely known for his role as a Founding Father of the United States, with a talent for philosophy and writing that got him the job of drafting the Declaration of Independence. He served two terms in the role of President, where his talent for politics was in high demand. Most of us also know that Jefferson was an accomplished architect, musician, farmer, and the inventor of the swivel chair who spoke and wrote five languages. Yet we tend to discount the value of those achievements. We shouldn’t. Those talents served him well in lesser roles at various times by building social capital, preparing Jefferson for his political career, and advancing it from the Revolution to his Presidency. How many of us have sounded the deep talent base in our own extended family, let alone in the workplace? Make sure you keep spotting and developing talent (in yourself and others) even if it’s not specific to any current role. It may become very valuable in a future role.

Social  capital is real, but it can be difficult to value.

Non-family human capital also needs to be spotted and developed within the family ecosphere. You’ll want to engage senior management, board members, scientists, and other contributors who can help you generate more financial assets.

ncludes your trusted relationships and human networks. You manage and develop these over time to generate more financial capital. And also for a more fulfilling life

Irénée du Pont, founder of DuPont, got his first business— a gunpowder mill— off the ground with social capital. In fact, it’s one of the most famous examples of the use of social capital in American history. At the initial stages of building his company, his costs were skyrocketing out of control in 1803 to build a factory that had no orders. Here’s how those orders got placed.

Thomas Jefferson was President of the United States at the time, and he had been quietly trying to solve a growing international problem for two years. Jefferson told Pierre du Pont (Irénée’s father) that in 1800, Napoleon had signed a secret treaty with Spain for control of New Orleans and the surrounding territory. This was alarming to Jefferson, who regarded du Pont as a dear friend and considered France to be the strongest and most strategically aligned ally of the U.S. But nobody who controlled New Orleans could be counted on as a loyal friend of the U.S., because 37% of the U.S. economy passed through the port of New Orleans. In an 1802 letter to Robert Livingston, the U.S. ambassador to France, Jefferson projected that half the U.S. population and half of all agricultural production would soon come from the French-controlled Louisiana territory. Jefferson wanted to buy the land, but his political opponents (including Irénée’s own lawyer, Alexander Hamilton) were against it. Napoleon couldn’t be trusted, and France owed the U.S. FF18 million. Yet Livingston had made no progress on this problem in a year.

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Pierre du Pont had social capital that Livingston lacked. Pierre had assembled the world’s best social network of French government ministers and other influencers needed to support a treaty with the U.S.. Joseph Frazier-Hall’s Pulitzer-prize nominated biography of the du Pont family describes how Jefferson deployed Pierre du Pont to Paris on a secret mission to secure an agreement. In back-channel diplomacy, Pierre convinced cash-starved France that Jefferson would offer cash and cancel her debt in return for New Orleans and all its territories to the north and west. In a letter to the U.S. military, Jefferson described this in detail and commended Pierre for invaluable service to his new country. Jefferson also asked that an order for gunpowder be put in immediately to Irénée’s startup company, I.E. du Pont de Nemours & Cie. That first order for 22,000 pounds of black powder was booked as $10,000 in revenue, roughly half Irénée’s first year earnings when the company was desperate for cash. Pierre had converted his social capital to financial capital.

Social capital is real, but it can be difficult to value, since it comes in two forms: realized (spent) and unrealized (stored), and since its durability is highly variable. You can transfer social capital from one person (or gear in the system) to another. How that’s done is more art than science.

Intellectual capital is the intellectual property (IP), personal know-how, and expertise that you and your family members possess. If your cousin invents or designs a product that you produce, you’re making use of her intellectual capital. As a group, your family enterprise can manage its intellectual capital to generate more financial assets. Lifelong learning is the Future-Forward mindset you need to develop for growing intellectual capital in the family.

IP has important commercial value worldwide. Patents, trademarks, and copyright are all examples of protections available for intellectual capital. Think of them as storage boxes that preserve the value of the intellectual capital over a specified period of time. Or as a ringfence around your markets to keep competitors out. Du Pont has a robust patent history stretching back into the 19th century. And family members themselves were among the patent holders. For example, the founder Irénée’s grandson Eugene filed two patent applications in 1889, one for process (the gunpowder press) and one for product (a kind of gunpowder called brown prismatic). Famous du Pont patented products include Lycra, Teflon, Kevlar, and Neoprene.

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Works Cited

• Tsai, Florence C. “Longevity DNA” Phoenix Rising – Leadership, Chapters 2, pp. 55-61
• Cerami, C. A. 2004. Jefferson’s Great Gamble. Naperville: Sourcebooks.
• Krinsky, C. H. 1978. Rockefeller Center. New York: Oxford University Press.