Consulting with Family Businesses

Looking at Unique Challenges

In the world of family-owned businesses, only the fittest survive—about 33 percent last into the second generation; 12 percent make it to the third generation. Family firms comprise 80 to 90 percent of all business enterprises in North America. They are the backbone of the nation’s economy and range in size from small mom-and-pop stores to giants like Wal-Mart. Nearly 35 percent of Fortune 500 companies are family firms; they account for almost 80 percent of all new job creation, 60 percent of the nation’s employment, and 50 percent of the GDP.

Consulting to family businesses, however, is significantly different from working with nonfamily firms; yet, surprisingly, the field of organizational development has largely ignored these unique systems. This article summarizes research findings that identify some of the characteristics of family business systems and the special skills required to work with them.

Family Businesses

A family business is an organization in which family members influence ownership and management decisions. There are a variety of firms that fit this definition. Many conflicts and issues family businesses face result from blurred boundaries between business and family affairs. The following case illustrates the challenges faced by family business consultants.

Thomas Gems

Seventy-five-year-old Mort Thomas has worked in the jewelry business for almost fifty years. He first worked with his uncle and then opened his own store, Thomas Gems, forty-five years ago. The business has grown, and Mort now owns eight stores with ninety employees and total annual sales of approximately $12 million. Mort’s wife, Shirley, died six years ago after battling cancer. Before Shirley became ill, Mort had considered cutting back on business. Yet, devastated by his wife’s death, he changed his mind about retiring. He was left wondering, “What should I do with all this time on my hands?”

His two sons, Mark, 48, and Steve, 44, are in the business. Mark is the general manager, and Steve is in charge of marketing and sales. Mort is president and owns all the equity in the company. Although he has told everyone that Mark will succeed him as president, Mort has not done any formal succession or estate planning. The brothers argue constantly in the office. They each report every argument to Mort, who tries to resolve their disagreements, usually without success. Mort says the current conflicts are killing him, and he can’t even think about succession planning until his sons begin to get along better. The family issues are beginning to spill over into the business. Nonfamily managers are often dragged into the siblings’ battles during management meetings. The employees are all affected, and they report that morale is at an all-time low.

Mort comes to the office every day, even though he no longer has any formal duties. Mark notes that Mort is “driving him nuts” because he still wants to be involved in day-to-day operations. The manager of one of the stores, Tom, who has been with the company for fifteen years, is now threatening to leave. The HR director has encouraged the brothers to hold executive management meetings, but each meeting ends in an argument.

Despite the situation, the business continues to expand and be profitable. Mort has little in savings or retirement; his assets are all in the business. His attorney, David, has worked with him for thirty years and has given up trying to get him to create an estate plan. Over the years, Mort has made secret deals with his kids, loaning them money as they ask. He says he can’t say no. Mark just asked Mort for a $21,000 loan.

What makes consulting to family businesses unique and significantly different from working with nonfamily enterprises? The differences are in four areas: systems perspective, process/content, multidisciplinary teamwork, and emotions.

Systems Perspective

Traditional advisors and consultants work in the three systems of a family firm—ownership/governance, business, and family systems—often as if they were separate and distinct from one another. For example, organization consultants work largely within the business systems, and family therapists usually deal only with the family. What distinguishes family business consultants is that they work in the interface of the three systems (See figure 1).

Family business consultants may help a family define job descriptions, compensation, and benefit packages. This work includes not only improving the relationships (family system) but also involves succession planning of both the ownership and management and improving employee morale (business system). Without the skills, training, and experience to maintain a systems perspective and work with all three systems, the consultant will not be able to create lasting changes. A family business consultant has no choice but to work in the interface of the three interacting circles and must be prepared to deal with issues in each.

Improving employee morale by team building would be a short-term solution that would not last without reducing tension among family members. The family tension was related not only to succession and estate planning issues but also to Mort’s unresolved grief. Basic understanding of systems is crucial for this work. An organization consultant may do a terrific job communicating in the stores as well as working with the management team, but unless family issues are resolved, benefits would be short lived.

Process/Content

Traditionally, the OD consultant has focused on the process of change. In working with family businesses, the consultant must be able to provide information and manage the change process. Content and technical expertise, as well as knowledge of the change management process, is needed to work with family businesses. The advisor must know the difference between process and content, understand the importance of each, and use both as the situation indicates. The family business consultant who works with the Thomas family must answer specific questions about the estate plan, transfer of ownership, and management issues in the succession process, as well as manage and guide the organization’s changes.

Most change efforts in family businesses are unlikely to succeed unless the consultant uses the right combination of content and process. Figure 2 indicates that the information/content and emotion/process input exist in a reinforcing loop. Improvements in the technical side, such as a sound estate

plan or clear roles and responsibilities, promote healthier relationships and support good business practices. This is why multidisciplinary consulting teams are essential when working with family businesses, since no single professional has all the content information and process skills needed.

It is unrealistic for organization development professionals to understand the complexities of estate planning, but it is critical when working with family businesses to understand the tax consequences of not having an estate plan. OD consultants should be familiar with corporate and governance structures and key psychological issues, such as family developmental life cycles and the impact of crises on family dynamics. It’s often necessary to delegate critical duties to an accountant or attorney or to work in a multidisciplinary team.

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Multidisciplinary Teamwork

Family business consultants come to the field from a variety of professions such as accounting, law, family therapy, and organizational development. Each of these disciplines has knowledge and expertise critical to helping family businesses. Multidisciplinary work is not unique or new to family business advising. OD consultants, in particular, appreciate the advantages of teamwork, yet too often they attempt to tackle the complexities of family businesses alone. These complexities can overwhelm those who have previously worked independently.

In order to gain the benefits of a team approach, professionals must understand what each has to offer and how they can work together. There are team models based on how often advisors work together, the level of coordination, and the members’ commitment to the team.

Consulting (Interdisciplinary) Team—A pre-existing team hired by a client
Collaborative (Multidisciplinary) Team—Advisors from different disciplines who meet, get to know each other’s work, and bring one another into client situations on an as-needed basis or in a shadow consulting function
Accidental Team—Advisors who meet and connect only through the client, then coordinate their efforts
Dysfunctional Team—Advisors unknown to one another, with no coordination, even if working with the same client

Although consulting teams offer more comprehensive advice, they also pose challenges. The client will not improve if served by a therapy team that has problems of coordination, competition, or conflict. Any team must deal with the following questions before beginning the work:

Who will be the quarterback?
Who will see that the work is coordinated?
How will the billing be handled?
How will differences of opinion be managed?
Who will be the liaison to the client?
How will the client be sold on the multidisciplinary team?
How will competition for the best idea or the best recommendation be dealt with?
How will everyone find the time necessary to plan for the tasks of team maintenance as well as meeting the client’s needs?

The ethical issues of each profession will also need to be addressed.

Lawyers ask: Who is my client?
Therapists ask: What are the issues of confidentiality? What are the boundaries?
Accountants ask: What are the financial priorities, and how do they fit into the family priorities and values? How are the intangible assets of the family included in the valuation?
Organizational development consultants ask: What do I do with the conflict in the family that is causing low morale among the nonfamily employees?

This leads us to the final significant difference between traditional OD consulting and family business consulting: emotions.

Emotions

Another unique issue of consulting to a family business is emotion. While emotions influence individuals in all workplaces, family businesses are especially emotionally charged. Clients may become angry, bear long-standing grudges, scream, and cry in both family and work settings. Entrepreneurs, who often lead family businesses, are noted for being rather volatile and difficult to work with. Changes during the consultation may upset previously established patterns of behavior and communications; this causes intense emotions to surface. Rewards, benefits, ownership, family, and work role definitions are also altered. Consultants must be prepared to help their clients work through emotions as changes are made to improve the health of the family and the business.

Roger Harrison’s article “Choosing the Depth of Organizational Interventions” describes a useful framework for analyzing the depth of interventions in family firms. Consultants to nonfamily firms must also consider this but are not usually dealing with the depth and intensity of such long-standing emotions that can simmer in families. The questions below examine the application of Harrison’s framework to the Thomas Gems organization.

Levels of Intervention at Thomas Gems

Level 1—Analysis and development of operations

Who does what job; what is the governance structure; how is the company doing?
What are the job descriptions of everyone, family and nonfamily, and how are they decided?
Who makes ownership and management decisions?
What is Mort’s plan for succession?
Is there a board of directors with outsiders, and how does it function?

Level 2—Individual performances and structures for implementation

Who are the best people for which jobs?
Who trains employees?
Is there an employee handbook?
What are the hiring/firing policies?
What are the policies for the next generation entering the business?

Level 3—Analysis of working relationships

• Does the family have a mentoring program for incoming family members?
• Are family council meetings held, and how do they work?
• What is the reward system?
• How does the family make decisions or plan strategically?

Level 4—Interpersonal relationships

How does the family communicate or solve problems?
How do Mark and Steve make decisions for the business?
What are the family values; do they steer the business?
What are the family dynamics?

Level 5—Intrapersonal analyses

What are the issues for Mort in his inability to let go?
What, if any, is the unresolved history of the sons’ conflicts?
Is therapy needed?
How long term and deep are these unresolved issues of grief, miscommunication, and inappropriate behavior?

Determining the right intervention:

Each level requires specific skills and competencies.
The technical and emotional exist in a reinforcing loop. The more hidden and private the issues are (Levels 4 and 5), the more difficult and sometimes risky these issues are to access and change.
The benefits of Levels 4 and 5 are less transferable in nonfamily businesses but more transferable in family businesses. The emotional impact is greater, especially when dealing with owners and upper-level management.
If focusing on the technical issues fails to get a response, then it may be appropriate and necessary to move to the emotional levels.
Don’t start with the emotional levels, but always be ready for them.

Integrally related to the intense emotionality of families in business is the ability of consultants to identify and resolve their own emotional struggles. If they have not worked through their experiences, whether negative or positive, personal agendas may take over or, worse yet, consultants may become ineffectual. This risk is considerably higher when working with family businesses than in traditional firms. If consultants acknowledge their triggers, they are less susceptible to the family’s pull, and they won’t confuse their reactions with the client’s. Consultants should jump into tough situations with courage and wisdom and use feelings as data and keys to solutions, rather than acting them out.

This does not mean putting your feelings aside, but you need to examine them and use them strategically. What you know about yourself and your client can make the difference between a success and failure in the engagement.

Family businesses introduce specific challenges and require special skills, but the rewards are inherent. Firms like Thomas Gems not only overcome problems, but the families can also experience improved relationships. Although each family business has certain common patterns and issues, each one has a unique history, dynamic, and theme. Organization development consultants must learn more about these unique systems before working with family businesses.

Three Musts for Consultants

Intervene at a level no deeper than your skills and training allow. For example, at the deeper levels, a qualified, licensed therapist may be required to manage the intensity of emotional reactions or to treat an individual with serious mental health issues.
Intervene at a level no deeper than that described in the initial contract without getting permission from the client system.
Communicate regularly with your consulting team or other advisors involved with the family business to make certain that you are working toward the same goals.

About the Authors

Jane Hilburt–Davis is founding principal of Key Resources, a Boston-based consulting firm that specializes in family-owned and closely held businesses. Her expertise is in family systems, conflict management, and professionalizing the family firm. She earned her master’s degree in social work at Boston University.

W. Gibb Dyer, Jr., is the Marriott School’s O. Leslie Stone Professor of Entrepreneurship. His expertise is in the areas of family business, entrepreneurship, and organizational change and development. He earned his PhD at MIT and his MBA and BA from BYU.

This article is adapted from the book Consulting to Family Businesses published by Jossey–Bass Wiley Publishers in 2003.

By Jane Hilburt-Davis &; W. Gibb Dyer, Jr.
Photography by Bradley Slade