That family businesses are numerous and significant is a known fact. In order to cater to the wide variety of these business, most major business, financial or strategic service providers have specialised teams dedicated to family businesses. Family offices, too are numerous for families to choose from and yet when speaking to families in business, more often than not, they feel that is is a challenge to find the right third party advisors. What in these cases may be underestimated, is that it is not only a matter of finding the right consultants, but also about the readiness of the family to accept advice from non-family members.
The need for advice
Numerous banks, consultancies, legal offices, and other institutions have taken to focus at least part of their activities on family businesses. Family businesses generally can be termed to be in need for advice on several core issues:
· Family governance structuring or establishment and Family constitutions
· Wealth management
· Succession planning
· External financing options and management strategy
Many family businesses typically encounter these challenges by the 3rd generation and may need outside help to find constructive solutions to them.
The things to consider
Advising family businesses can be a challenge, as the advisor has to take into account not only the business aspects of the task, but understand, respect and include the family dimension. Advisors with long-standing family business experience will take several aspects into account.
For one, business-owning families get highly specialised in their businesses.
Family members can identify with it so much that for generations the talent for a certain trade is passed down. Therefore it is understandable that advising a family business can be quite a challenge, because of the knowledge it has acquired in its own field and because the values the family has established around it. Of course, it is more likely that a family will consult an outside advisor when it goes into new ventures or needs to tackle a new issue, however advisors will be ready to face family members with great insight and knowledge on anything relating to their business.
Another aspect that may make advising a family business different from working with other businesses, is the involvement of the family itself. Through the family dimension, every new project or undertaking automatically gets an additional layer of complexity, whereby the opinions of individual family members from different generations need to be taken into account in order to successfully progress and warrant continuity.
A third particularity is that families may have a different outlook on strategies than non-family corporate structures. Any decision a family business will take includes the aspect of providing for the next generation. The family’s visions and values are founded around sustainability and longevity. This means that, while family businesses are just as profit-oriented as the other firms, at the same time they may also have other priorities.
Despite the fact that the mentioned aspects are rather apparent, and despite the many diverse services offered to family businesses, many seem to find it hard to find a match between family business and advisor. This can have something to do with the fact that there may be a discrepancy between offer and expectation. It has to be understood by both sides that the successful collaboration between advisor and family firm is subject to open communication and is a two-way street.
While family members may be open to outside advice and change, this does not mean that hiring a consultant or advisor and waiting for them to come up with solutions will to be enough. On the contrary, the family has to make sure that certain preconditions are in place for a successful consultation of non-family advisors and subsequent implementation of new strategies. So how can a family business be ready for a third party advisor?
· Agreement between family members: Depending on how many family members are active at the management level, lasting changes can only be implemented when all family members agree to these changes being necessary. In a family business it may happen that through the differences between generations, one part of the family thinks that an outside advisor is required whereas others do not see where new input would be necessary. Unless the whole family agrees on the issue that needs to be addressed and then recognises the necessity for an advisor, the chances for success are slim.
· Informed employees: Depending on the type of consultancy required, non-family employees will play a crucial part of any innovation or change in a family business. A family should not take outside advice without informing its non-family employees. Their cooperation is crucial, especially when it comes to implementation of change. Of course, this will not be the case for strictly family-internal issues. However, non-family employees have to be counted in as valuable resources for unbiased inside information on the company structure. Therefore, families will benefit from preparing and informing their employees thoroughly on upcoming changes and incoming consultants.
· Family has to be ready to question itself: The family needs to ask itself whether it is ready to face questions regarding its usual way of conducting business. Family members need to be willing to unlearn certain things and to be open to suggestions.
For a family business advisor, working with family businesses is not something that becomes a routine at any point in time. On the contrary, as every family business is unique, every time an advisory job is approached, the advisor need to take thorough look at the nature of the issues at hand, whilst at the same time taking into consideration the family and its characteristics.
In short, one could say that the following aspects need to be considered when advising a family business:
· Give it time: There is no walking in and applying ready-made management tools to a family business. It is important to understand that dealing with different generations within the family business requires an approach that takes time. A gradual implementation is important for a lasting effect.
· Relevance across generations: The solutions offered to a family business needs to be coherent not only with the current vision but also should take into account the ideas of the next generation. Especially in the Arab world, the probability that family members will eventually take over the leadership of a company eventually is rather high. If the changes and strategic moves cannot be supported by the next generation, the family business will face major issues the latest the next time when it comes to succession.
· No prejudice: it is important for the advisor to go in without prejudice or without set ideas towards the family or the business and to gradually explore both dynamics. Family businesses are complex entities and it takes time to understand them.
As we have discussed above, before a family lets in an advisor, both the family and the advisor need to do some groundwork. It takes some preparation for the family to ready itself to absorb outside help. It may be advisable that the family itself first acquire a strong, factual understanding of what the underlying issues are before getting experts on board. More often than not, if you do not want to admit that there are challenges, you typically do not want to hear it from someone else, either! Similarly, advisors should avoid going into family businesses with pre-conceived notions or ready-made answers, but rather take time to customise their approach. If both parties take into account the respective factors, a collaboration will not only be successful, but can actually become part of the foundation for a sustainable future of the family business.
Tharawat Magazine, Issue 8, 2010