A lot has happened since the family business field started to emerge as a distinct area of knowledge and practice.
It is now accepted that the family business client is a complex economic and emotional system in which the distinct and separate needs of a family, a group of owners and a business all have to be balanced. This makes it impossible to detach the interests of the family from their business and advise them as if they were separate entities; however, blending these distinct interests poses new challenges for advisers.
Until now advisers have mainly examined the needs of a family business client through the lens of a technical specialism. The specialist’s perspective is valuable and provides effective assistance in many aspects of what a family business needs, but there are also risks with this approach.
The main one is that not many business families consider their lives and relationships to be reducible to a series of specialist problems to which there are proficient, technical answers. Their reality, in contrast, involves the bigger task of making crucial decisions about the transfer of wealth, power, roles and titles while being fair, loving and considerate with the family and their business interests.
Often a case is made that responding to this challenge involves specialists developing so-called soft skills. This term is used to describe an indistinct cluster of personal characteristics that seemingly enable advisers to interact more effectively with clients These need to be combined with hard skills, being the adviser’s chosen technical specialism.
This is, of course, an adviser-centric view of the world. Family enterprises would reasonably argue that the conventional nomenclature should be reversed because the soft stuff is in fact the hard stuff. There is no doubt that the adviser who engages with the emotional dimension of key decisions that every enterprising family must make will have an advantage over others who fail or refuse to do this, but there are many more elements that go into establishing a trusted adviser relationship with a family business than just combining specialisms and so-called soft skills.
Advising family businesses is not about:
It is about understanding the challenges that arise in a complex system as these change over time and how these changes affect a range of vested self-interests in the family and the business. Soft skills, as the term is generally understood, plus some personal experiences and a few best practices will be wholly inadequate to deal with this reality even when allied to hard skills or expertise in one aspect of what the family business needs.
However awkward and challenging it may be, the adviser to a family business has to be relentlessly client-centric and willing to honour a simple maxim; every family in business together is different. Advising these clients involves a combination of knowledge and skills that need to be learned and then mastered through practice, like any other field of professional work.
The key question is, can every decision that a family and their enterprise need to make be reduced to a series of technical problems to which there are proficient specialist answers?
Common sense would say that the answer is no, because of the complex interaction in these enterprises between the different needs and greeds of a group of family members and their various enterprising activities. However, this does not deter specialists from trying to reduce complexity by applying their expertise.
The following account casts doubt over the belief that advice from different specialists spontaneously coheres into an effective plan for a family enterprise. It is intended to be whimsical but contains some challenging truths.
The clients, husband and wife co-preneurs, seek help from an adviser called Mr. Smith. Their motivation in arranging to meet him is a growing concern that time is marching on and there has not been much planning about how and when they will retire and whether any of the next generation either wants to take over running the business or inherit shares.
There are four in the next generation, all of adult age, well-educated and quite sensible and the eldest currently works in the business, although even his parents admit he is not the most talented of their offspring. The parents are worried about treating the family fairly while also being fair to the enterprise and all its stakeholders.
In this type of meeting the client often reveals a lot of information and floats ideas for the future, but in a rather haphazard fashion because there are so many issues to worry about. If Mr. Smith feels slightly overwhelmed and uncertain about how to address the issues that the clients are unloading, and others he can guess at, it is understandable for him to use specialist knowledge to filter the information and identify where he can help. This, however, usually means help in areas where his specialism is relevant.
This is understandable but not always helpful. While Mr. Smith, with relative ease and impressive haste, can bring some sense of order to what might seem a chaotic discussion by interpreting what needs to be done through the lens of his specialism, from the clients’ perspective the world looks different and a lot less focussed. They are unlikely to understand the technical answers to the technical problems that they did not know about before Mr. Smith mentioned them. In any case, these do not address the doubts and uncertainties about the future that had prompted them to arrange a meeting in the first place. Plus Mr Smith used a lot of technical jargon.
It also has to be acknowledged that if Mr. Smith either charges clients for his services based on some measure of time or has a product to sell, there is an organisational imperative forcing him – or, if that is too strong, at least encouraging him - to do something that will be chargeable to the clients. That something will again be linked to Mr. Smith’s specialism, or possibly the specialism of one of his colleagues.
Mr Smith might also believe that showing off an ability to respond quickly will impress the clients. The effect of this approach can be compared to jumping on a train – the clients - that is gathering speed - their anxieties about the future - and then trying to help by shovelling in more coal to make the train go faster to a destination. However, if the family enterprise train is headed, metaphorically, over the edge of a cliff just getting there faster is not exactly going to be helpful.
Or, less dramatically, if the destination reached under Mr. Smith’s specialist direction is called “tax plan” or “retirement funding package” the client might be wondering, ”how did we end up here when we were trying to get to “how do we divide ownership and who do we appoint as next leader of our business?” Maybe by now they feel that they got on the wrong train.
So the clients decide to sound out Mrs. Brown, who comes from a different specialism, but sadly for them the process is repeated. She in fact insinuates, “with all due respect” that Mr Smith’s suggestions were unsound due to some recent technical developments that she tries to explain to the clients before concluding, “you don't really need to know that.” This helps Mrs Brown display her specialist prowess, although it simultaneously adds to the clients’ confusion and, as a result, their anxiety about the future is now turning into a sense of dread.
Mrs. Brown, like Mr. Smith, explains a number of technical options for the future, none of which the clients understand, before signing off with the cheery suggestion that she will write all this down for the clients and they can get back in touch after they have read it and decided what to do.
After this busy day of meetings, the clients feel they have many problems they did not know about earlier in the day when setting out with the hope of finding ideas about the way forward. While all the advice was no doubt well intentioned and technically accurate, the clients are still unsure if they are any closer to answering the questions that really concern them. Questions like, “do the next generation want to take over the family enterprise or become owners, given that two of them do not get on?” It occurs to them that this snippet of information about the family’s relationship difficulties never entered the discussions earlier today, but then again no one asked.
Lots of advice from different specialists recommending different solutions and sometimes even disagreeing over what is the best technical approach could indeed have an unintended sedative effect on clients; the effect may even be soporific. After the sedative wears off, or after awaking, the clients could be excused if they conclude that it is easier to push on with life, push back any concerns about the future and adopt that most popular of succession planning options; do nothing and wait and see what happens.
Only insecure advisers prone to panic at the prospect of change to the established order are likely to interpret the foregoing as denigrating technical specialisms. Family enterprises need the advice provided by specialists, but they also need them to collaborate in a multi-disciplinary team who can help the family make decisions about the future and then, working together, implement the family’s wishes without the distraction of team members competing with each other for the favoured status of being the most trusted adviser.
Enterprising families do not need advisers who prefer to work in isolation in their specialist corners, coming out only when they have something technical to say. Nor should families trust advisers who want to compete with each other to become the gatekeeper.