3 Signs You Are Out of Your Depth when Advising a Family Business

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A Family Business Adviser works as an trusted ally who works towards resolving conflicts among family members, and protect family business from its evil effects  David Harland, Managing Director of FINH

The real value of a trusted business advisor is most apparent when there is conflict in the family. Most enterprising families work together quite well when times are good, and there are many non-specialist advisors (such as accountants and lawyers) who perform good work under these conditions.

Conflict resolution is a different animal. The Harvard Business Review perhaps said it best decades ago: “A family-owned company is often grievously complicated by friction arising from rivalries involving family members who hold positions in the business, or at least derive income from it.”

That was written by corporate psychologist Harry Levinson, a pioneer in the understanding of how emotional health impacts job conditions. Levinson notes that serious family conflicts will harm or kill good businesses, concluding that “the only real solution is to move towards professional management.”

If you work for family businesses, you may be faced with unfamiliar or uncomfortable positions. Sometimes the best decision for the business (and yourself) is to consult a specialist in the field of family business.

With that in mind, here are three signs you may be out of your depth when advising a family business:

1) When you know there is conflict in the family and it is impacting on the business outcomes.

Let’s say you are aware of emotional struggles between the founder and some of his family members. You observe that business performance might suffer if the conflict goes unresolved. Whether you want to help or not, you may not feel qualified as an expert in conflict resolution.

This leaves you in a difficult situation. The conflict will not go away if you do nothing, but if you intervene and cannot bring the family a structured and calm approach to resolution, there is a chance you are going to be a net harm to the family.

These are exactly the kinds of situations in which a specialist family business advisor makes sense. Someone with the expertise and neutrality necessary to bring conflicting individuals together and make healthy compromises.

Left to fester, family conflicts normally bleed over into the business. The process works the other way, too. Consider the types of conflicts listed below — every single issue creates potential spillover effects to the other column.

Interpersonal Family Conflicts

  • Sibling rivalry
  • Health issues
  • Age and mental stability
  • Infidelity and divorce
  • Substance abuse
  • Individual legal problems
  • Who is included in “family?”
Business and Ownership Conflicts

  • Estates and succession
  • Control
  • Non-family influences
  • Distribution of profit
  • Leadership and strategy
  • Family employment policies
  • Handling poor performance

2) When you know they need family governance but you don’t know how to get started.

In How to Choose & Use Advisors: Getting the Best Professional Family Business Advice, Dr. John Ward and Dr. Craig Aronoff write that the first lesson professional advisors must understand is “the need of business owners to make succession, strategic, personal financial and family plans that reflect overlapping business, personal and family goals.”

In an international survey of over 300 C-suite executives of family firms, only 11% use family business consultants or specialized management consultants. Family businesses, for a variety of reasons, are not as quick to reach for the third-party advisory option, and often to their detriment. They are distinctly different and, in many cases, need different advisors.

Family business governance models tend to be primitive, especially in the first-generation — meetings occur across the kitchen table or shop floor, nobody keeps minutes, and perhaps there are no outside influences on the business structure.

In these cases, specialist advisors already have a ready-made plan. Non-specialist advisors are not usually experts in family business governance structures. To avoid complications or mistakes by trying to set up family governance structure on your own, it is probably best to contact a specialist family business advisor.

3) When you have perceived conflict of interest because you are engaged by one key family member.

A lot of very intelligent accountants, lawyers and bankers end up making sub-par family business advisors. This is not because they lack professionalism or hard work.
Let’s take a common example. You may interact with lots of family members within a particular business, but you personally favor working with some members of the family over others. You really want to be an independent and impartial professional, but others may still perceive favoritism.

A similar but related problem can surface when some family members try to leverage their relationship with you to advance their personal agenda or to win favor in the planning process.

Specialist family business advisors are better equipped to overcome these obstacles. Part of specializing in family interactions means displaying emotional intelligence in the service of professional competence and performance-based results.

If you would like to talk to a specialist family business adviser please call us on 3229 7333.