The role of advice in family business

If PwC’s latest Global Family Business Survey is anything to go by, family businesses are thriving: 71% reported growth in their latest financial year, with 43% reporting double-digit growth.

According to the European Commission, family businesses account for more than 60% of all business in Europe. Many thrive for generations – but is there anything in particular that makes them a success? And what role does advice play in family enterprises?

What characterises a family business?

Generally speaking, family businesses are those in which two or more family members are involved, and the majority of ownership is held by the family.

From an independent, local ice cream parlour that’s been in the family for generations, to a global enterprise with thousands of employees – together with everything in between – family-owned businesses come in all shapes and sizes. Family constitutions vary, but businesses often include parents, siblings, children and extended family members.

There are unique dynamics and characteristics that mean family and multigenerational businesses often have distinctly different ways of working than regular, non-family businesses:

• Involvement of family members. One of the most obvious differences is that families are working together, and will be involved in decision-making processes, governance and management of the firm. Depending on the type and size of the business, they are likely to hold senior leadership positions, make up the management team, and may also be board members.
• Informal culture. In general, family firms will have a far more informal culture than that found in other workplaces.
• Embedded traditions and values. This often includes the family’s heritage identity, beliefs and ways of working, which are all passed to the next generation.
• Long-term perspective. While many companies have a long-term perspective, for families who aim to keep their businesses profitable and family-managed for future generations, it’s even more important. The commitment to making the business a success, and ensuring its longevity and lifecycle, can be higher – as the stakes are higher.
• Ownership. Members of the same family own and control the business.
• Succession planning. This involves preparing the next generation to take over as family business owners and run the company. Succession and estate planning is one of most important aspects of running a family business, and is concerned with ensuring a smooth transition in terms of ownership and management.
• Community focus. For a lot of family businesses, particularly those based in a specific, local area or region, commitment to community involvement and prosperity is often a key feature. Linked to community purpose and social improvement, family firms with a company purpose connected to the United Nations’ Sustainable Development Goals (SDGs) outperformed peers across multiple financial and social metrics (PwC Global Family Business Survey).

What are the advantages and disadvantages of family businesses?

There are both pros and cons to family-run enterprises.

Mastercard reports that family businesses often benefit from increased resilience – with ‘two in five saying that being family-fun makes a business more resilient and adaptable, and six in ten agreeing that being a family business helps them to build closer relationships with customers.’

However, they also note that family dynamics, struggles and conflicts can hold them back and affect growth: one in five report conflict regarding business succession; a quarter state personal, family relationships as the greatest challenge; others cite generational differences as the reason why new technologies, systems and processes that could benefit the business aren’t adopted.

Other advantages can include:

• greater stability
• greater sense of loyalty and trust
• flexibility
• relaxed, comfortable work environments
• shared vision – which can lead to speed and adaptability
• common values
• greater opportunities and permissions
• wealth preservation and security for loved ones
• better communication
• authenticity
• decreased costs – as family members may make sacrifices for the business.

Other disadvantages can include:

• lack of skills, competencies and experience – as family members may be appointed to roles they aren’t suitable for
• complex, challenging family dynamics
• work-life balance
• lack of discipline
• ‘groupthink’ – where different viewpoints, approaches and innovations can be lacking
• expectations of other family members
• repetition
• increased pressure
• hierarchy.

What role does advice play in family businesses?

There is a lot to be said for family advice. In multigenerational businesses, skills and expertise have generally been handed down over the years, with family members showing each other the ropes and mentoring them through invaluable, on-the-job learning. However, this can bring with it downsides; family members have vested interests in the business, and are often too close to the issues at hand, they may not always be able to make fully objective decisions. Additionally, family dynamics can also lead to complexities, stress and challenges where matters regarding ownership, management and economic interest are involved.

As such, seeking impartial, objective business advice regarding how the business is owned and managed can be fundamental to making the best choices and strategic decisions. A family business advisor, for example, can help families to better understand what does, and doesn’t, make their business run successfully. Whether it’s for a small business or a large enterprise, consultants occupy a unique position that allows them to work through impasses and develop solutions that work for family members and businesses.

For example, they can offer advice and guidance to private clients on a wide range of matters:

• facilitation of family meetings and employee reviews
• exit strategy
• governance
• leadership and management development
• navigating impasses and difficult situations
• crisis management
• succession planning and transition management
• wealth management
• tax issues – including inheritance tax
• business administration – such as family office/registered office.

Many family businesses also rely on solicitors, family council professionals and legal providers to help them navigate complex matters. An independent, informed perspective can help family-run businesses to access new opportunities, agree on strategic decisions, and implement meaningful changes.

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