ABOUT THE AUTHOR: Nils Johnson is a Founder of
Spence Johnson
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’.
“Selling is about a dialogue, with the seller probably
asking more questions than making statements”
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.