ELITE ADVISOR BEST PRACTICES

Happy Family, Happy Business, Happy Advisor

Helping family businesses reduce financial friction at the boundary between business and family can yield a plethora of long-term client opportunities for elite advisors. Here’s how.

By Jay Zack & Tom Hubler

Key Takeaways:

  • Successful family businesses share four common attributes: commitment to harmony, clearly defined roles, emotional intelligence and forgiveness.
  • To maintain a successful family business, clients need to put business priorities ahead of family dynamics. A certain amount of formality, discipline and protocol is essential in all family enterprises.
  • Poor communication, informality, avoidance and “behind the back inferences” are common attributes of dysfunctional family businesses.

Many of us work with the owners of family businesses and their families. Advising successful business owners and their happy family members is a wonderful experience as opposed to advising businesses with contentious family matters, no matter how successful the business. For advisors, the task of helping closely held business owners diversify their risks and investments is a challenge even in a smooth environment. With a backdrop of family squabbles, outcast siblings, ownership transitions and the occasional business downturn, the owners’ personal lives can exacerbate the advisor’s role on the professional team.

Twenty years ago, I met a great family business consultant named Tom Hubler. Tom and his partner were experts in a field mostly ignored at the time. Now, of course, family business consultants and family financial advisors are in hot demand. To help you stand out from the crowd, Tom agreed to share excerpts of an article he published earlier this year that applies to our wealthy clients as well as to those clients enveloped in the life of a family business owner. Family business consultants can bring tremendous value to your elite advisor networks.

With that in mind, here are some key points from Tom’s article:

“All happy families resemble one another, each unhappy family is unhappy in its own way.”—Leo Tolstoy’s Anna Karenina

Tolstoy’s comment about families is particularly true of family-owned businesses, especially when conflict produces unhappiness. Any family business will have differences unique to that business and that family, but there are some common denominators to that unhappiness. Chief among them is not managing the boundary where normal business differences erode family relationships, or where family rivalry undermines working relationships. Most conflicts in business families can be managed when that boundary is recognized and honored. Here are some factors to watch for and ways to reduce frictions at the boundary between business and family.

Characteristics of an unhappy business family:

Informality. Conflict can easily occur when the business lacks a formal structure and operates without written job descriptions, clearly stated roles and responsibilities, and prescribed decision-making systems. In defense, a family member may say, “We don’t need all that formality because we love each other.” My response is that because you love each other you need formal structures.

Poor communication. Misunderstanding, hurt feelings and poorly worded statements all contribute to family business conflict and unhappiness. Tension escalates in families that act out or stuff their feelings. “Email wars” are legend where one person inadvertently sends an offensive message (or it is interpreted as offensive). The recipient then responds even more scathingly, and the race is on, with potentially devastating consequences.

Behind-the-back inferences. A particularly damaging aspect of poor communication is the “indirect statement.” It occurs when one family member complains to another about a third without ever talking to the “offender” about the problem. This is how rumors start, feelings get mangled and family harmony falls apart. It is even more demoralizing when the indirect statement starts as a request for advice that gets turned around and family members stop trusting each other.

Avoidance. All of the above-mentioned unhappiness factors—informality, poor communication and behind-the-back inferences—are so daunting that some business families subconsciously attempt to reduce conflicts by avoiding discussion altogether. A family member or the entire family chooses not to broach a normal business issue because it’s “so small” or would “upset a family social gathering.” Doing this repeatedly will develop a pattern that produces the very problem it is trying to avoid: family unhappiness caused because differences are unspoken.

Characteristics of a happy business family:

Successful family businesses that know—or learn—how to be happy as a family and productive as a business generally share four attributes.

Commitment to harmony. Everyone in the family helps manage the boundary between business and family. They do it by holding regular family meetings—not at social gatherings but as part of the business cycle. Larger business families organize as a family council so that everyone can participate whether they are engaged in the business or not. Family business meetings prepare agendas that include discussions of critical issues such as governance, outcome expectations, family expectations, shareholder education and distribution policies (to name a few). Successful business families adopt a philosophy that it is easier to discuss and prevent a problem than to try to fix one. In addition, successful family businesses create a “common family vision” that unifies their meeting structure and incorporates their family values.

Clearly defined roles. Within the family meeting, the business produces clear roles and job descriptions. This is accomplished by developing a “family participation plan” that specifies family expectations for success within the family business.

Emotional intelligence skills. Successful family businesses educate themselves about understanding feelings such as self-awareness, empathy, self-confidence and self-control. They use communication programs such as collaborative team skills (CTS) to practice and strengthen their skills in the company, the family and in family meetings. They learn how to listen and how important it is to create understanding within the family.

Forgiveness. Successful families in business are able—and know how—to forgive each other. Even with people you love, it is virtually impossible to be a family with a business and not accidentally step on each other’s toes. What is crucial is to have the ability to say, “Ouch, that hurts,” as well as the capacity to say “I’m sorry” and “I forgive you.”

Conclusion

By gaining the trust of successful family business owners to navigate the tricky waters of both long-term financial planning and long-term family harmony, you can really cement your relationship as a key ally to the principals. Family business consultants can bring tremendous value to your elite advisor networks.


About the Authors

Jay Zack, CPA, PFS, is the recently retired location practice leader for RSM McGladrey, Inc., in Naples, Florida. He has focused on the tax needs of middle-market businesses, their owners and high-net-worth individual clients for more than 30 years.

Tom Hubler (tomh@thehublergroup.com) is president of Hubler for Business Families (hublerfamilybusiness.com) and an adjunct professor at the University of St. Thomas.