When Does It Make Sense to Engage Family Business Consultants? – Excerpt from Enabling Next Generation Legacies
The Family Enterprise Legacy Institute has been featuring select parts from the book, Enabling Next Generation Legacies: 35 Questions That Next Generation Members in Enterprising Families Ask.
The result of years of international research and practical experience, Enabling Next Generation Legacies delves into the unique challenges that confront family enterprises.
Telfer professors Peter Jaskiewicz and Sabine Rau have brought together the world’s leading academics, practitioners, and enterprising families to answer the most pressing questions faced by Next Generation members in a short and concise, yet meaningful way.
The book consists of best practices, real-life examples, and additional critical questions for reflection from nearly 100 contributors from 27 different countries. Expert commentaries come from members of the world’s leading family businesses including Auchan (France), Saputo (Canada), and Sabra (Israel), as well as from various academic experts from business schools around the globe like Kellogg, IMD, and INSEAD.
Below, read an expert response to a pressing question raised by Next Generation members.
When Does It Make Sense to Engage Family Business Consultants?
Response by Evelyn Micelotta, Canada
No matter how large or small, family businesses often look for advice from consultants. Management consultancy is a global business worth US$160 billion in 2019,[i] providing solutions in various areas of management. In the world of family businesses, the involvement of a family in the ownership and management introduces unique features and may generate additional challenges.[ii] Should a family business select a consultant with established experience in working with family businesses? In my experience, yes. A generalist consultant may focus on the business system without sufficiently considering the complexity generated by the family system. Family business consultants, instead, focus on how the business system, the family system, and the relationship between them should be managed. It can be unproductive—and even dangerous—to hire business consultants unfamiliar with the family system. Understanding that the value of family business consultants is their ability to operate at the intersection of family and business, we need to address two related questions.
Question 1: Will the Issue at Hand Benefit from the Advice of a Family Business Consultant? How?
There are three managerial areas where the advice of a family business consultant is likely to be beneficial. First, when the engagement of a consultant is aimed at filling a gap, either in resources (e.g., time and knowledge to establish a social media presence), in specific expertise (e.g., the implementation of a new tool in the family business, e.g., ERP), or in consensus (e.g., transfer of ownership or management). A family business may be occupied with day-to-day operations and not be able to devote time to collect and process strategic information; seeking the support of a consultant and his/her team allows the family coalition to speed up this process and obtain the desired outcome much faster and cheaper. Second, when the issue at hand is one that requires expertise and knowledge outside of the core business of the family firm, for instance an IPO or a sale. In these circumstances, a key function of a family business consultant is to reduce power and knowledge asymmetry, while protecting the integrity and the interests of the family and the company. Third, family businesses typically benefit substantially from external advisors where there is the need to reassess basic organizational processes that connect the family and the business system. For instance, if a business needs an upgrade in its family governance structures, a family business expert is needed to ensure that changes in the family are understood. Some of the issues that affect governance issues might include the rising numbers of family members in later generations that should support, rather than undermine, family harmony and effective organizational decisions like the introduction of a family council. This final form of engagement of a consultant is particularly critical and delicate in family businesses. The role of the consultant is not to bring outside expertise and apply it to the family firm, but to manage a process of co-creation with the family coalition. The underlying principle of this engagement is to understand the rules and structure of the specific family firm and to offer an array of potential solutions that support the family goals and may help prevent future conflicts. Importantly, this is where the consultant cannot (and should not) provide a one-size-fits-all solution but a tailor-made solution for the specific family and its business.
Question 2: Is the Family Ready to Hire a Family Business Consultant?
Consultants are top experts who engage in both delivering value and learning at the same time. To effectively advise a family business, it is essential for a consultant to develop an in-depth understanding of the business and the family behind it (i.e., situational knowledge).[iii] In family businesses, grasping the real source of a persistent problem is particularly critical, however, it may take a long time, especially if there is not much willingness in the family to discuss old grievances or reveal complex, and potentially dysfunctional, dynamics. Equally challenging is to capture key information from nonfamily managers who may be reluctant to share knowledge about the family with outsiders. Hence, when thinking about hiring a consultant, families need to honestly assess whether they are able and willing to provide the expert with the needed situation knowledge about the family and its dynamics. It is possible that family members will not agree on the status quo. That is okay; an experienced family business consultant should be able to ask the right questions to make sense of the situation. However, the consultant will be powerless if most of seemingly private details are not revealed. Such consulting projects not only waste time and resources but can even make families worse off.
Example: A Bridge to Cross a Generational Divide
A situation in which hiring an external consultant turned out to be critical was the one facing Mushroom Inc., an international European family business in the mushroom business. The founder and CEO of Mushroom Inc. had been procrastinating succession for a long time, even though the successors had been ready and pushing for years. The situation stalled to a critical point, with distrust and conflict surfacing. Further conflict was only avoided when both generations agreed to engage a third party—a trusted consultant. As the successor explained:
“You need an external expert for that, who is also a trusted figure. The first generation and the second generation were constantly having fruitless arguments. There should be someone who can take into consideration both interests and can be neutral. Fortunately, we did have that. My father had a consultant who was respected by both parties. He moderated us and helped us to develop and apply rules for the transition.”
Trust in the family consultant, combined with deep situational knowledge about the family firm, enabled this advisor to be successful in helping this family company navigate the treacherous waters of succession.
The decision to open the doors of your business (and your family home oftentimes) to a consultant is an important one, that should be considered carefully. Hiring a specialized family business consultant is the best option, given the peculiarities of family businesses. Hiring a consultant makes a lot of sense (1) when it is clear what specific (temporary) gaps an external advisor is able to fill, (2) the issue at hand is extraordinary, as it falls outside the managerial expertise of the company, and (3) a recalibration of the family and business system is required. Additionally, it should be emphasized that consultancy in family businesses is a process of co-creation. Confidence that the expert will be able to obtain the situational knowledge is essential to successfully help the company. Together with a CPA, a banker, an attorney, and an investment specialist, a trusted consultant should be in your speed dial list of must-have advisors.[iv]
Enabling Next Generation Legacies: 35 Questions That Next Generation Members in Enterprising Families Ask is now available in eBook and hardcopy. All royalties from Enabling Next Generation Legacies go towards the University of Ottawa’s Telfer Fund, helping students in need. Learn more at www.35questions.com.
[i] “Size of global management consulting market from 2011 to 2020,” Statista (website), 2021, https://www.statista.com/statistics/466460/global-management-consulting-market-size-by-sector/.
[ii] Kelin E. Davis, John A. Davis, Marion McCollom Hampton and Ivan Lansberg, Generation to Generation: Life Cycles of the Family Business (Boston: Harvard Business School Press, 1997), 1-320.
[iii] Alaric Bourgoin and Jean-Francois Harvey, “How Consultants Project Expertise and Learn at the Same Time,” Harvard Business Review, July 27, 2018. Retrieved from https://hbr.org/2018/07/how-consultants-project-expertise-and-learn-at-the-same-time.
[iv] Wayne Rivers, “The Five Advisors You MUST Have In Your Family Business,” Family Business Institute, July 16, 2019. Video, 6:17. https://www.familybusinessinstitute.com/five-advisors-you-must-have-in-family-business/.