Hiring a family business consultant: Key questions and considerations

Bernie Kliska

Bernie Kliska

As a consultant to family businesses, I am frequently asked, “When will I need a family business consultant?” The simple answer is, when you need one, you will know it.

A consultant is usually brought in to help a family resolve particular issues that they do not have the time or expertise to resolve by themselves. There are basically two types of systems consultants often used:

Expert or project consultants will give you solutions to particular problems and help implement those solutions.
Process consultants help you define the problems and then assist you in reaching your own conclusions and solutions.

What should you be looking for when hiring a family business consultant? The first and most important factor is straight forward: can they help solve your particular issues that are hurting the family and business or both?

Before hiring a consultant, here are some questions you should ask yourself:

  • What type of experience do they have working with family businesses?
  • How broad and deep is their training?
  • How long have they done family business consulting?
  • Do they demonstrate expertise on the pertaining issues the family is presenting?
  • Have they helped other businesses with similar issues?

Two other basic criteria are cost and time. Is the consultant affordable for you and is there a time constraint? Do you have confidence that the consultant will complete the project on time?

While these are important factors, the real question is, does the consultant have the experience and ability to manage the specific issues that are involved? A quick and cheap solution that doesn’t solve your problems is not very useful.

Helping to cultivate harmony is an important part of the consultant’s involvement. Family businesses are incredibly complex entities. Family business members inherently need to work through a broad range of complicated challenges, with the consequences of failure being not only the loss of the business, but also potentially the loss of the love found in family relationships.

Succession, ownership, communication, family dynamics, and governance all require different types of management. However, to be successful, all of these things need to be functioning in harmony. Thus, there are many different skill sets that a consultant needs to work with a family business.

Running a business is hard, especially these days. Trying to run a profitable business with your family, while maintaining harmony within the family, can be even more difficult. Fortunately, there is help available.

Family business consulting is basically the art and science of helping a family business find the delicate balance of peace and success among the family and the business.

Posted in Family Business Consulting | Leave a comment

FBCG Celebrates 20 Years

Chris Eckrich

Chris Eckrich

In my last post, I wrote about the need for families to celebrate and build memories. This week marks the 20th anniversary of The Family Business Consulting Group’s founding by Drs. Craig Aronoff and John Ward. Since then the group has grown significantly and we have consultants spread throughout North America serving clients here and around the world. We consider it an honor to build upon the foundation our founders laid and are taking time this week to reflect on all the hard work and effort that went into building an enduring organization that serves the needs of enterprising families.

When reflecting on our first 20 years as an organization we are most drawn to the many stories of hard work, creativity, perseverance, courage and even humor that are part of our history. These stories become the bedrock of our culture and continue to provide clarity around our core purpose. Ultimately, however, the impact our organization makes is determined not by our stories, but by the stories of those with whom we’ve had a chance to interact, either through consulting or through our writings and presentations. As we pause to reflect on our own first 20 years we want to thank all of you, our readers, who have made this journey meaningful and worthwhile. We look forward to being part of your stories as we begin our next 20 years of serving enterprising families.

Blog note: As in Chris’s previous post, we believe in the importance of building connection and history within FBCG. As a thank you to the consultants and staff that support families across the world, and in gratitude to their families who support them in this work, we gathered together to celebrate 20 years of service and collaboration. We’ve shared a peek at that event in the photos below.

JPS_0014-3446823805-O

What’s a celebration without cake?

JPS_0153-3446839180-O

Our youngest attendee, Rebekah, tries out the silly hat photo booth.

JPS_0094-3446832041-O

Cheers!

JPS_0375-3446877351-O

Releasing lanterns with notes of gratitude and for future success.

JPS_0299-3446863753-O

 Closing out the evening with a little music and dancing.

 

Posted in News & Events | Leave a comment

Creating Memories

Chris Eckrich

Chris Eckrich

Summer time for most allows at least a partial chance to break from the hectic pace of everyday life and find time for relaxation often in the form of a vacation away from the busyness of home and work. Far from being a marker of laziness, the ability to take time away from intense thought and activity and allow the body and mind to restore allows us to come back to our work or vocation refreshed, often with new perspectives on how to achieve our goals.

Summer is a good reminder that even working families need time for restoration and reigniting the bonds that connect. Some business families only engage in competitive (and sometimes stressful) work environments with each other, but lose touch with (or never develop) opportunities to just be a family. This missed opportunity to create new bonds can prevent the family from building new memories and new stories in the family’s history. Having time together to explore new things (think vacation spots, cruises and such) and to just relax and have fun (think down time in which business does not need to be discussed but joy is experienced together) becomes the fodder for the stories that will become part of family folklore.

It is easy to drop into a mode of “all work and no play” but that truly does make Jack (and Jill) dull and less connected as family members.

As we reflect on the benefits of summer time and look forward to the coming year, in what ways will new family memories have space to be created and banked in the family’s history?

Posted in Communication & Conflict, Family Business Values, Mission, Vision, Values & Culture | Leave a comment

Asking and listening…

Dana Telford

Dana Telford

I visited my mother in law last Tuesday. Before I left to drive home, she insisted that I take a sack full of “windfall apples” back to my wife and kids. “Windfall apples?” I thought to myself as we began picking red apples off the lawn. “I’ve never seen Windfall apples in the grocery store. Fuji and Gala and Macintosh and Granny I recognize, but Windfall apples? Are they grown in Chicago or on a windswept tropical island somewhere? She must be confused.”

Had I stopped there, and gone on assuming that I knew more about apples than this mother of 7, grandmother of 18, I would have missed a valuable lesson. She was describing the way the apples had been harvested, not the brand.

I asked her, “What are they called? Windfall apples?” She said, “Yes, they are the ones knocked out of the trees by the wind. My dad used to call them that, so I do as well.”

A light bulb went off in my head – windfall. Like in Monopoly. A windfall is defined as a “sudden unexpected gain or piece of fortune.” I’ve played Monopoly for decades with my siblings, friends and now children, and have never understood the meaning of that word.

Too often in life we forget to ask family members what they know and how they know it and what they believe and why. By listening to their reasons for doing certain things in a certain ways, we can discover, not only more about them, but also more about ourselves. Why does mom put the paper towels on the roll one way versus the other? Why does granddad add water to the pancake batter? Why does Uncle Steve say “a quick nickel is better than a fast dime”?

There are usually very good reasons why people believe what they believe and behave the way they behave. But if we never ask, we’ll never learn. We can gain so much from each other, regardless of age or gender or role in the family. And learning will ultimately help us avoid some of the pitfalls that others have experienced and shape our views of the world and how we want to experience life. It is not uncommon for adult children to take their experiences from younger years and find ways to improve on them. Watching parents struggle with financial challenges, for instance, and living paycheck to paycheck can cause a young adult to focus on discovering ways to ease those challenges in her own future.

Improving our ability to ask “why do you do this or believe that” and listening carefully to the answer will provide greater benefit than simply observing and either dismissing or mimicking behaviors. This is a habit we can begin to instill into future generations. And when one of our children or grandchildren ask us why we ask so many questions and listen so intently to the answer, we’ll know we’ve reached our goal.

Posted in Communication & Conflict, Family Business Values, Next Generation Development | Leave a comment

Compensation in Sibling Partnerships – A “Fairly” Complicated Topic

Dana Telford

Dana Telford

A common anecdote told by family business advisors quips that the first three things a second born child learns to say are “Mama”, “Daddy”, and “That’s not fair.”

Tensions and complications related to sibling partnership compensation are grounded in the early-formed, emotional quest for fair treatment between siblings. Like it or not, brothers and sisters compare how much time and resources they receive from parents and grandparents with that of brothers and sisters. This dynamic lasts throughout the sibling relationship – which on average is the longest in life – and must be confronted and managed if we hope to put together a successful compensation system for family members in our businesses.

Earlier this year I analyzed my 70 most recent client engagements and was not surprised at how many of them struggle with the question of siblings and compensation.

  • In 60 of the 70 family companies (86%), siblings work together on a frequent basis (at least one day per week).
  • Of those 60 family companies, compensation is a major issue in 54 (90%).
  • Of the 70 total companies, family member compensation is a significant issue in 58 of them (83%), regardless of whether siblings work together.

Though it may seem simplistic, many of my clients use the Golden Goose analogy to teach children (and adults) about their family business. Protect the Golden Goose from the Sly Fox (primary competitor) and it will lay Golden Eggs for its owner. If the owner gets too fixated on the Golden Eggs and forgets the Sly Fox, he’ll kill the Goose. Dead geese don’t lay eggs, and families miss them when they’re gone.

Compensation in sibling partnerships becomes more straightforward when viewed as an important part of keeping the business healthy for its owners. Owners want their businesses to grow profitably. Profitable growth is a result of excellent decisions made by managers. Owners understand that overpaying under qualified managers, whether family member or stranger, isn’t going to protect the Goose for very long.

Developing a Compensation Policy can help provide clear guidelines for the family to consider when analyzing sibling partnership compensation. Some important elements of compensation policies include:

  1. The concern that any advantage given to family members working in the business will be seen by employees as family socialism superseding free-market capitalism.
  2. Family employees will be compensated in the same manner as non-family employees, period.
  3. Compensation levels will be determined by fair market value analysis.
  4. Family member performance will be measured consistently and compensation adjustments made accordingly.
  5. Family employees are expected to live within their financial means and not encumber themselves with excessive debt or rely on special disbursements.
  6. Extra compensation, when deemed fair and reasonable by the Board and/or Family Council, will be provided through ownership and/or family channels.

As a mechanism for satisfying point number six, consider compensating family employees as owners or future owners. Provide stipends for serving on the Board or Family Council, provide a fair and reasonable dividend taken from profits when the company performs well, pay family members for special ownership-related research projects (e.g. A review of a top competitors strategy) or to serve on an investment committee.

Posted in Policies, Sibling Teams | Leave a comment

Continuity vs. Succession: The BIG Question for Family Business (Part 2)

This is part 2 of Dr. Baskin’s post on Continuity vs. Succession. Read part one here.

Otis Baskin

Otis Baskin

Continuity Planning differs from Succession Planning because it addresses the deeper issues of how ownership and governance issues will be handled in subsequent generations.  While Succession Planning is generally about who will succeed YOU, current generation leader(s) of the business, Continuity Planning is all about how WE will go on together.  As a family business transitions from first generation to second and third generations and beyond, success depends more upon a group process than a single leader.

Continuity Planning requires thoughtful preparation for the following questions:

  • Who will own the business in the next and succeeding generations?  If the major transfer of wealth in an estate plan will be in the form of an operating business careful planning must be done to protect this engine of prosperity for the benefit of all owners.  What will be the responsibilities and benefits of ownership?  Whether the assets are transferred directly to members of the next generation or held in trust, those intended to benefit from this blessing must be prepared to be good stewards together.
  • How will the next owners make decisions together?  When a generational transition benefits multiple owners (siblings or cousins) they need to be prepared to work together as owners and stewards for subsequent generations.  An otherwise well-educated and business family that has relied upon the current generation to make decisions can disintegrate if they are not prepared to make decisions together.  This is particularly true as families grow and all owners cannot or choose not to work in the business.  The CEO must become accountable to ownership when he or she is not the sole owner.
  • What will guide the next owners?  When parents are no longer able to provide guidance and counsel to the next generation where can this support be found?  A clear understanding of the family values that made it possible for previous generations to build a successful family and business is critical.  Having these values documented in a way that allows the current generation to continuously review them and apply them to their situation and time can provide a stable foundation for family harmony and business success.

Continuity Planning is also planning for good governance practices in subsequent generations.  Providing decision making structures and processes that assure all owners, whether they hold an executive position in the business or not, that their interests are equally considered and their voice can be heard.

Posted in Succession & Continuity | Leave a comment

Continuity vs. Succession: The BIG Question for Family Business (Part 1)

Otis Baskin

Otis Baskin

The most frequent issue that brings new clients to my practice in family business consulting is “SUCCESSION.” This is often viewed as the big question in a family business because so many are asking about it.  Key non-family executives want to know who will be their next boss.  Bankers want to know who will be responsible if something happens to the current leader.  Customers and suppliers want to know who will be in charge in the future.  Children working in the business want to know who is expected to step into mom or dad’s shoes.  Other owners, both family and outside investors, want to know who will be responsible for decisions about how their capital/inheritance will be deployed.

As important as this question is, it really isn’t the biggest question for a family businesses.  It is possible to do a great job of succession planning and miss the bigger point of Continuity Planning.  I worked with a very successful and thoughtful family business leader who did a comprehensive job of succession planning.  He involved all significant stakeholders in the decision including family, key executives, and outside advisory board members.  While all four children had MBA degrees and excellent work experience, the search quickly narrowed to the two sons who worked in the business.  When the next president was finally selected everyone, even the finalist not chosen, understood that the process was fair and based upon a set of objective criteria.

All went well for the new president through his first year at the helm of his family business.  By the end of that year the business was booming and the factory was working double shifts trying to fill end-of-year orders.  The new president had also promised his wife and four children that they could visit her parents for the Christmas holidays.  As his wife pressed him for a firm date when he could leave for their holiday frustration grew because all the pressures at work made it difficult to set a date.  One day his father was in the office and the new president shared his frustration.  “I don’t understand your problem” was his father’s reply, “the company jet is at the airport and the pilot is on call – take it; that is what I would do.”

When the new president returned home from his holiday he had emails from his three siblings which read:  “When it was dad’s company it was dad’s airplane but now it is our company and it is our airplane.  (A good estate plan had gifted 80% of the shares to the four children.)  And you owe us money for the private use of a corporate asset.”  The new president understood, he was a CPA who knew corporate tax law.  But his siblings were upset with him and his father was upset with the other children.

The real issue was that while their father had done an excellent job of succession planning, he had failed to address the deeper issues of how his children and grandchildren could own the business together and make decisions about the deployment of their jointly owned capital together?  Addressing these deeper issues is what Continuity Planning is all about.

Posted in Succession & Continuity | Leave a comment

Communication and the Family Council

Steve McClure

Steve McClure

“What is the dividing line between what goes on in a Family Council meeting and what gets shared with family members?” This was the question recently asked by a Family Council Chair.

He was getting criticism from some in the family for not sharing enough, and at the same time cautioned against sharing too much by those on the Family Council. Further, the Chair relied upon selected members of the senior generation to get advice on tricky matters; so some selected family members were privy to more details than others. The Family Council communication protocol was murky and the Chairman worried about getting caught taking advice some might see as biased.

In our experience there are no hard and fast rules for communications that work for every Family Council and the constituent families they serve. Each family has a culture which helps determine communications, privacy and transparency practices. That said, rules that have worked for more than a few are the following guidelines for Family Council communications:

  • Assume all discussions throughout a meeting are private and will not be shared with anyone – then, at the end of the meeting everyone will participate to agree and decide what will be communicated, how, by whom and when (also, even if an individual disagrees with what the Family Council decides to communicate, each individual will support the group decision);
  • When getting advice from specific family members (e.g., mentoring advice and seeking wisdom) it is not necessary to report such to the Family Council or to the family. Family Council members and the Family Council Chair should be free to consult whomever they wish without restrictions. However, in keeping with each Family Council members’ role of representing the whole family, we all agree we will try to balance solicited input by listening to the views of those known to have alternative perspectives;
  • Topics that are controversial and do not yet have conclusions or closure will not be communicated to the family without full Family Council consensus on what to communicate, how, by whom and when;
  • It is never okay to tell anyone outside a Family Council meeting who said what in a meeting; and,
  • If a family member outside the Family Council is asking for information that makes a member uncomfortable because there are no guidelines to cover it, Family Council members will get the topic on the Family Council agenda so guidelines can be established before proceeding. In some cases, it may be sufficient to get an interpretation from the Family Council Chair.

Developing written communications guidelines, which can be shared with all family members, is a good idea and works for many. Those who use written guidelines appreciate that they allow the Family Council to be proactive rather than reactive, and allow all family members knowledge about what to expect.

Posted in Communication & Conflict, Leadership | Leave a comment

A Dialogue on the Role of the Family Council

Steve McClure

Steve McClure

At a recent family meeting of more than fifty shareholders, spouses and future shareholders, an 18 year old asked a question during the Family Council Chairman’s report: “How did you set the priorities of what you worked on during the last year?”

It was a great question and the Chairman was on his game with the answer – it allowed him to remind the family how communication and decision making is supposed to work between multiple family members and a five person Family Council. He said, answering for the Family Council, “We purposely approached family members outside our own family branches and asked each individual what they thought was most important. Then we compared notes in a Family Council meeting and decided as a group for the family.”

A follow-up question quickly emerged, “Why didn’t you let us all vote on the priorities?”

Again, the Chairman, “We view our responsibility to the entire family, as elected representatives, to listen well and then make decisions and plans on behalf of the family. We carefully try to not overstep our authority by bringing our decisions and recommended policy to a vote by the entire family when appropriate. Yet, we must be productive too. Thus, we thought it best to proceed as we did.”

In this case, the Chairman could also refer to the qualifications of Family Council members which were written. One qualification is that individuals must be able to understand the family culture well enough to know when to act as a representative and make informed decisions and when to invite the entire family’s input on a decision.

Posted in Leadership, Ownership & Shareholders | Leave a comment

Shareholder Director Selection as a Two-Step Process

Amy Schuman

Amy Schuman

In selecting a relatively small number (3 – 5) of family directors from among a relatively large (25 +) shareholder group, a two-step process can be very effective.

Step 1: Identify family members who are qualified to serve as directors.

Step 2: Select from among the qualified family members.

Although this process  appears straightforward, it’s far from simple.

It can be challenging to agree upon a list of qualifications for family directors. To what extent will those qualifications be different from the non-family directors? Who decides the qualifications? And, even more difficult, who makes the judgment as to which family members meet the qualifications, and which fall short?

Once the desired qualifications have been established and qualified family members identified, how is the selection made? Are there term limits to ensure that a variety of qualified family members have the opportunity to serve? Is any consideration made to other factors besides qualifications, i.e. family branch, generation, geography? Is there a regular and robust board evaluation process to keep the focus on performance of directors?

Although best practices call for qualifications to be the determining factor in director selection, be they family or non-family directors, most families find it difficult (if not impossible) to ignore branch and share percentages when selecting directors. An ideal approach can be to acknowledge the desire for branch/share percentage representation, while agreeing that any seated director must meet the established qualifications. Happily, with larger shareholder groups containing experienced and able members, this is often easy to achieve.

In the sibling stage, it is common that all (or nearly all) interested siblings are able to serve as directors. In the cousin stage, this dynamic changes radically. Not all interested family members will automatically have the opportunity to serve as directors, as their parents did. Resolving this issue is one of the most difficult tasks facing the cousin consortium.

Many successful families in the cousin stage have solved this sticky problem by following a variation on the two-step process described above. They find that it answers many of the tough questions quite well. Dear readers, do you have experience – or wisdom – or tough questions – to share in this regard?

For more information, our book Building a Successful Family Business Board by Jennifer Pendergast, Stephanie Brun de Pontet, and John L. Ward can be an invaluable resource.

Posted in Business Governance | Tagged | Leave a comment