Family-owned businesses face specific challenges that are different from private individuals, limited companies or plcs. Family business owners are often both company directors and controlling shareholders, and their personal wealth and corporate responsibilities are completely entwined. Due to their complex nature, these types of businesses pose challenges and opportunities for advisory professionals such as lawyers, bankers and accountants. However, many family businesses feel that advisors lack some of the necessary interpersonal and business skills to work effectively with multiple generations of family business stakeholders, and this is more often due to complex family dynamics than to lack of technical competence.
This perceived mismatch between advisory skills and service is frustrating for family business owners and professional advisors alike, so STEP and the Institute for Family Business commissioned new research to explore how members’ skillsets and business practices can be improved to support family business owners. The research, which consisted of focus groups and interviews with family business owners and advisors, has highlighted new perspectives on how outcomes for families and their advisors can be improved. These include broadening skills beyond technical competences, adopting business practices from other professions and overcoming barriers to working more collaboratively.
Beyond technical planning
With clear demand for business advice and ample supply of advisory talent, what could be the problem? The good news is that families recognise and value the support that advisors can give them. As one owner put it, ‘the difference between being a successful family owner and an unsuccessful family owner is whether or not you’re savvy enough to choose the right advisors and use them in the right way’. However, there is a general feeling that advisors appear to be lacking the breadth of skills that family businesses need. As one business owner said, ‘there is ego, arrogance, lack of empathy and a real lack of credibility from not having done it before’, and this poor skillset is compounded by the way that advisors often focus on transactions: ‘Most of the professional side is actually deal-driven’.
Experienced practitioners recognise that skills beyond professional qualifications are required to be effective advisors to family businesses. One advisor underlined the importance of his people-based skills when he said: ‘You don’t graduate with your accountancy qualification and then suddenly find that you can do this’. Indeed, the traditional technical qualifications of most professionals are no longer seen as sufficient: ‘You have to bring in all these different strands of ability and knowledge that go far beyond your technical skills’. It is now recognised that to be effective, advisors ‘need to be technically absolutely sound’, but also spend most of their time ‘talking about the soft stuff’.
In addition to emotional intelligence, advisors can bring other non-technical skills to their family business practices. To facilitate engagement, advisors can learn techniques from other professions. One advisor describes how ‘thought leadership improves the quality of his engagement and expands his intellectual capital’. Another advisor borrows engagement techniques from educational fields because ‘engaging the next generation and anticipating future risks starts with education’. In all these initiatives, it is critical to follow a tried and tested process, because: ‘If you haven’t got a process then there’s no way you’re going to get to the big decisions’.
Once a family is prepared to take advice, the two most common areas to tackle are governance and succession planning, but in both, people issues feature larger than technical issues. Trust must be built up because business structures and succession decisions are rarely congruent with family dynamics. As one family business owner said: ‘If succession is to be effective, it requires rigorous objective standards to be applied because, after all, this is about people’. Advisors, too, observe that they are more effective when they have ‘a clear structure which creates clarity for everybody understanding what their roles and responsibilities are’.
In the core activities of governance and succession planning advisors may feel in their comfort zone with technical skills carrying the day. But there are other, equally important services that the advisor can bring, based on a completely different set of business practices. These include activities such as engendering trust, appraising people’s strengths and weaknesses, and highlighting dysfunctional family dynamics. In each of these examples, experience with counselling, human resources and organisational psychology will enhance effectiveness. The added value of this new approach was summed up by one advisor as ‘providing insights into the qualities and calibres of the people to come up with hard truths; to hold up a mirror to the people and the family psychological system.’
Adopting new business practices
There are lots of suggestions from the research that describe new business practices that successful family business advisors employ. Most of these are about changing professional practices to support the values that family businesses want to see: consistency, collaboration and facilitation.
Family business owners frequently remark how ‘the one thing that advisors need to do much more of is to put families in touch with other families’. This is because clients learn best ‘by speaking to other families who’ve been through the same thing’. For advisors to satisfy business owners’ needs, they need to focus more on networking than on sharing their technical knowledge.
This theme applies equally to how advisors market themselves to prospective clients. Rather than focusing on technical solutions, ‘there needs to be a cultural and emotional fit to make a connection’. Family business owners tend to be reactive rather than proactive in seeking advice: ‘We wouldn’t go out of our way to look for somebody unless we actually needed to.’ This tendency means advisors need to actively and continually interact with family businesses to highlight the value of their advice. We observed more experienced practitioners using networking and consultative selling techniques to secure engagement with prospective family business clients. One advisor described this process perfectly: ‘Great selling is about a dialogue, with the seller probably asking more questions than making statements.’
But when it comes to paying for advisory services, there is clear evidence from the research that pricing is undermining value propositions. Comments such as ‘I think advisors need to get away from the clock ticking’ were heard together with demands that ‘It has to be an outcome-based fee structure, not an hours-based fee structure’. For advisors, this is one area where there are no easy solutions: hourly pricing is well entrenched in most large partnerships and accountancy firms. But the gauntlet has clearly been thrown down, with new thinking required in this area. After all, it’s hard to argue with the observation of one business owner that ‘the advisor should be as skilled in pricing their services as our business is in pricing our products’.
Overcoming barriers to working more collaboratively
Another area where it was felt advisors could improve is collaboration. Advisors tend to work in partnership silos, whereas families work as networks, and this mismatch becomes most apparent in the weaknesses of the professional referral system. One advisor noted that ‘certain firms give each other quite a lot of referrals even if they may not be the right person to deliver that service’. This same problem arises in the intangible constraints that the partnership structure imposes on collaboration between advisors in the same firm. Either way, advisors need to recognise that advisory business models may need to be adapted to produce positive outcomes for family business clients.
Conclusion
Family businesses have complex needs that demand a distinct set of advisory skills. Not surprisingly, this complexity is commensurate with more attractive fees, provided the advisor can get over the hurdles to secure an engagement. As this research has shown, broadening skillsets beyond the technical to encompass soft skills, and adapting business practices to support family business values can prove effective in both securing and managing family business relationships.