Lawrence Nicholson | Family business advising gaining traction

One of the issues faced family-owned businesses, FOBs, in Jamaica is whether to engage the process of ‘family business advising’.

In recent years, conversations related to FB advising has gained some momentum in Jamaica, motivated by the reports of prominent Jamaica-based FOBs having to engage the courts to resolve family and business-related issues, such as succession planning and estate planning.

While FB advising is a relatively new concept in Jamaica and the rest of the Caribbean region, it has gained a foothold in many countries, including the United Kingdom, United States, Canada and Australia.

The process of including FB advising as a line item in the budget of FOBs is not always seamless. Therefore, it is important that FOBs educate themselves about what is involved. The objective of this article is to provide some insights that could provide some guide in making an informed decision.

FB advising is referred to as a specialised field of consultancy that seeks to help FOBs navigate family and business-related issues, arising from the complexities associated with the intersection of ownership, family and business. While general business consultancy and FB advising might have the same goal of addressing various issues of the business, FB advising usually involves a long-term association and interactions with the families involved in the business.

The FOBs literature characterises FB advising to be more invasive than general business consultancy. Based on the literature, among the common areas covered in FB advising are conflict resolution among family members, succession planning, estate planning, issues related to family business constitution, shareholding agreement and general governance issues.

FB advising is usually led by someone who has some level of expertise in FOBs. Depending on the issues and level of complexities involved, the team of FB advising can include a FOBs expert, an attorney at law, a family counselling expert, and an expert in matters related to business financing. There are cases in which the FOBs expert covers many of these areas.

Documented benefits

There are documented benefits to be gained from FB advising. Most of the benefits found in the literature are based on testimonials from FOBs, five of which were outlined in an article as outlined below.

The invaluable asset of a family business adviser: By including FB advising as part of the strategic framework, the family business takes on board a level of expertise that can help to provide guidance in critical intangible areas of the business.

As reported from one testimonial: “Just imagine having someone who has expertise in FOBs at your fingertips; someone who understands and can address the unique nuances and dynamics involved in your family business. Not from the perspective of an omnibus approach, but from the perspective of addressing the idiosyncrasies of your family”.

Providing fresh perspectives and the uncovering hidden potential: In addition to providing insights from a third eye, the FB adviser provides a fresh set of eyes and perspective, especially in areas that are blind spots in the business. These blind spots are revealed because of the closeness with which the FB adviser is allowed to work with the family.

The perspectives gained from the insights from a FB adviser help the owners to see the business from a different angle. Because this process can be invasive, care must be taken to establish boundaries.

Having a mentor and supportive partner with expertise in FOBs: The emotional strain associated with operating a family business can be a strain on family members in the business and outside the business. Having a FB adviser can help to “offload” some of this stress, which overtime can be reduced because the intervention of the FB adviser. For this to happen, the business must ensure that the FB adviser has the requisite expertise and experience to provide the required guidance for both the family and the business.

Providing an independent viewpoint: The emotions that come with working in FOBs sometimes block any sense of independence in the views expressed. The inclusion of a FB adviser can help to address this, through someone who can act as reliable mediator. This adviser can facilitate open and honest communication, while providing independent points of view. Having a FB adviser can also reduce the perception and incidents of conflict of interest.

Helps to bring stability and continuity: FB advising, especially the form involves a long-term engagement, helps to provide a level of stability and continuity to the family business. This usually comes through guidance on issues such as succession planning, estate planning and the setting up of family business governance structures, such as family business constitution and family council.

Phases of engagement

Engaging a FB adviser is a process that involves different phases. These phases grouped into the pre-engagement phase, facetime phase and the compliance phase. While these phases are listed as discrete, there are elements that overlap.

Under the pre-engagement phase, in the decision-making process of engaging a FB adviser, full discussions should be had with the major players in the business. Most times, this will include only family members, including in-laws, depending on the dynamics of the family. This is important because effective and successful FB advising is dependent on the honest input of the major players in the business.

This pre-engagement phase could include a family discussion on the intent to engage a FB adviser. All the relevant questions relating to the what, the why, the how and the when should be addressed, with some acceptable level of resolution. Discussions should be followed up with at least one meeting with the intended FB adviser and the major players in the business. This is important because the issues of personality and trust play an important role in FB advising.

A Stephen Covey quote explains the importance of trust: Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.

FOBs should be guided by this principle and should not engage a FB adviser in whom they have no trust, and whose personality conflicts with most of the members of the family. Doing background checks, getting testimonials on FB advising done, if any, and matching the value-system of the family with that of the potential FB adviser are important elements of the pre-engagement phase.

Also, the rules of engagement should be discussed, including providing a clear scope of the engagement and the attendant fees for the FB advising. There are times when this component can be carried over to the facetime phase, depending on the level of trust between potential adviser and the family.

The facetime phase is a carryover from the initial meetings with the FB adviser and the major players in the family business. This phase represents the phase in which a formal proposal is made, which include the scope of work, the proposed fees, the estimated time of engagement.

Usually, a time is given for feedback on the proposal. The family business is under no obligation to engage the FB adviser before both parties have signed off on the documented proposed way forward.

Depending on the extent of the work done prior to this phase, in addition to work done in this phase, the potential adviser might need to be paid for the work done. However, FB advisers have adopted the mantra of ‘not throwing away the stick used to cross the river, until the river is crossed’. After all documents are signed as confirmation of the agreed terms of engagement, the facetime phase transitions into the process of direct interactions with the major players and process of the business, guided by a non-disclosure agreement.

For the compliance phase, the nature of FB advising requires a longer than usually period of compliance. This is the phase that involves the FB adviser being willing and available to respond to questions and concerns after a final report has been submitted.

In many cases, this compliance phase covers months or even a few years. This is the phase where the real distinction between general business consultancy and FB advising is highlighted. Sometimes, a retainer fee is charged for this phase, depending on the agreement made regarding period of compliance and the level of involvement of the FB adviser.

On the sometimes-vexed issue of fees for FB advising, care must be taken not to be ‘penny wise and pound foolish’. In general, you can get what you pay for or for what you are willing to pay. The three common modes used to determine FB advising fees are hourly rates, monthly retainers and project-based rates.

There is need to discuss the merits and downside for each of these options. In deciding on the option, adopting the value proposition principle of Warren Buffet is a good starting point: Price is what you pay. Value is what you get.

Educating the public on family business-related issues remains the main purpose of these articles on FOBs, even when what is shared could be taken as ‘cutting of one’s nose to suit one’s face’.

More anon!

Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a former director of the RJRGLEANER Communications Group.lawrence.n.08@gmail.com