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HOW WEALTHY FAMILIES AVOID SCANDAL, WHEN ANY SLIP CAN GO VIRAL

Posted on February 21, 2011

Two types of privacy violations scare people with wealth and a reputation to protect: the isolated annoyances and the breaches that go viral. How to prevent the privacy violations from happening or, if that fails, handling the fallout.

Eugene Callahan, a lawyer with Wormser, Kiely, Galef & Jacobs, told a story about the first type of violation, the annoying kind. He said he recently looked down at his BlackBerry and saw an e-mail sent from himself. Far from being a to-do list, it was an entreaty from him to send money to Scotland to cover his hotel bill. Mr. Callahan, in New York at the time, knew his e-mail account had been hacked. But rectifying the problem proved more difficult.

"It took five days of talking with Microsoft to establish I am who I am," Mr. Callahan said at the discussion, "Family Reputation Management in the Internet Age," sponsored by Wells Fargo Private Bank. "It was a nightmare."

Yet as isolated incidents go, it will do no damage to his image. When a privacy violation goes viral, though, the long-term impact on someone's reputation is not so clear.

That has become an issue for August Busch IV after his companion, an aspiring model, was found dead in his bed two months ago with a significant amount of a powerful painkiller, oxycodone, and cocaine in her system. Mr. Busch was the head of Anheuser-Busch when it was sold more than two years ago to a Belgian company, InBev, a move widely criticized in St. Louis, his hometown. So he had no reservoir of good will to draw on when the death was reported. And an online search of his name quickly turns up a reference to the death.

This is the nature of scandal today. It spreads quickly and leaves a seemingly permanent stamp on one's reputation.

"Our society is built on a social contract," said Keith Whitaker, director of family dynamics at Wells Fargo Family Wealth. "This is a fundamental challenge for us around privacy and personal responsibility. We can't jettison our grandfather's past without taking personal responsibility for ours."

Yet disclosure can occur on a smaller, almost inadvertent scale, and still have a troubling impact. Mr. Whitaker recalled a woman who was ostracized by her classmates for the first two years of college because she spoke openly about her family's wealth. For her, it was natural to travel on a private jet and to spend thousands on shopping trips to New York. Her classmates thought she was spoiled. The problem, he said, was that her parents had never talked to her about what she should and should not reveal about them.

So what does a family do to protect its reputation, since its ability to earn a living is tied to its public image? In an age when even a sterling reputation can be quickly tarnished, the answers are not entirely comforting.

PREVENTION

The best advice is to avoid doing anything that can damage your reputation. But for families whose names are linked to their companies or status in their communities, even a small indiscretion can be magnified in the public eye.

Parents, for instance, who fear having the family name dragged through the mud need to talk to their children about the value of that name. Susan Massenzio, director of family dynamics for Wells Fargo Family Wealth, said she stressed three points in talking about a family's financial reputation: education, communication and moral character.

"The greatest limitation is fear," she said. "It's what drives the older generation to limit communication. Then the next generation finds out from others, and that's what we don't want."

The lawyers participating in the panel discussion suggested using trusts to protect assets from lawsuits. But the real threat seems to be not in protecting the money you already have but in preserving your ability to make more and your children's chances to have their own careers.

Even if no one in the family is doing anything to attract attention to your wealth, it is relatively simple to get extensive financial information on any family. Beyond social media sites, there are sites like Zillow that estimate the value of any home in America.

Gideon Rothschild, a partner at Moses & Singer, hushed the room when he discussed how much personal and financial information he found about himself on the Web site Spokeo.com.

"It will tell you all about yourself - your wealth, your income levels, homes, kids," he said. "A lot of the information they had about me was accurate."

Spokeo is a virtual one-stop shop for personal and financial information on anyone who has not opted out of its listings. The site draws from public records, but the information it aggregates is decidedly personal. Even if its estimates are off, the information gives people a sense of the broader picture - and all in one place. Other sites, too, like ZabaSearch.com, offer financial details.

"We talk to families about proper disclosure around wealth," Mr. Whitaker said. "We say, ÔYour kids, through the Internet, know a lot about your financial situation.' It raises the question of what you want to disclose."

So while you can keep a trust secret, it is much harder to keep your child or anyone who cares about your family from making an approximation of your net worth. Rather than pretend this is not the case, the panel agreed that it was better to tell them yourself.

CRISIS MANAGEMENT

The knee-jerk reaction will always be to try to suppress a scandal.

Calling your lawyers is a good idea, but using them to threaten or even to file a lawsuit may not be as effective as it once was. "We can use litigation as a tool, but they have to be careful," said P. Gregory Hess, a partner at Davidson, Dawson & Clark. "Pleadings are full of hyperbolic and untrue statements that serve as a starting point. They could end up on the Internet."

Instead, he suggested using mediation to try to contain information about the matter as much as possible. And if you know you are going to do something that will not be well received, the best way to protect your financial reputation is to plan ahead. Mr. Whitaker worked with a family who knew that selling their business, which had been linked to the same community for four generations, would paint them as rapacious heirs.

So in addition to working out the financial side of the deal, the family brought in a public relations consultant to help them with their image. "We used the P.R. firm to help tell the story of all the things the family was doing in the community," he said. "We also used them to help spin the story and monitor the news that would come out."

In this instance, the family was trying to control what it could control. But even in an era of sophisticated and highly paid advisers, there was a tone of resignation at the conference on the subject of containing the collateral damage from a scandal.

As one audience member asked, are the nieces and nephews of Fred Wilpon, the owner of the New York Mets who is being sued over his financial dealings with Bernard L. Madoff, in the public domain?

"I think everyone today is in the public domain," Mr. Hess answered. "If a C.E.O.'s family member is arrested for a D.U.I., that's going to be publicized. Should it be? You can't keep it out anymore."

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