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This Holiday Season, Give the Gift of Family Consensus

29/11/2019


The holidays often remind us of one universal truth: Family businesses are full of paradoxes. For instance, it’s never more clear, as we gather together in a non-business setting, that family members can both be at odds with one another and capable of supporting each other. Some owners can believe in tradition while others believe in innovation. One team prioritizes what’s best for the business while others want what’s best for the family. They can all fight for business ownership equality — and fairness.

These contradictions can cause tremendous family friction. As different parties take different sides, it becomes clear that — with most family business decisions — there’s no perfect answer. There’s no right or wrong way to run a family business. It’s up to the members involved to learn how to manage the tension and find the answer that works best for the majority.

In these situations, it can be tempting to seek help from advisors — but choosing the right advisors is critical to ensure you do not make a challenging situation worse.

The right advice

Too often, family business owners gravitate toward advisors who have technical expertise, such as lawyers, accountants and wealth managers. These advisors are a vital part of the team that helps a family navigate the complexities of managing a business. The problem? They’re trained to give answers — and when it comes to navigating the nuances of a family’s dynamics, this is simply not enough.

When an advisor gives a family an answer to a paradox, they’re essentially choosing sides — and their decision could be biased by their specific lens. Additionally, they may see one family member as their client and prioritize that individual’s needs over the needs of the family as a whole. This could inevitably lead to more conflict.

The “fair versus equal” debate is a classic case. In the farming world, we have a number of traditional approaches to passing on the family business. Primogeniture is still prevalent, indicating that gender bias in the farming world is still strong. In addition, the preservation of the family farm remains a primary focus for many businesses and the inclusion of non-farming children in ownership is rare.

It’s easy to understand how these traditions evolved. Farming has always been a cash-poor, capital-rich business where re-investment in the business was always an important part of survival. For the most part, profitability has been low and, at best, volatile. In truth, most farm wealth is a result of land ownership rather than retained earnings. For many years the only way to compensate farming children fairly was to gift full ownership of farming assets to one child, and non-farming assets (such as life insurance or off-farm property) to the others.

As a result, farm advisors have fallen into the trap of maintaining tradition and enforcing certain rules which now cause significant challenges. The advice often goes something like this: non-farming kids should not have ownership of farming assets and fair and equal aren’t the same thing. So, essentially, the first thing these advisors do is create the problem and may not have the expertise for dealing with it.

The three different advisors

  • The expert: This advisor has deep technical knowledge in a certain area of practice and is essential when dealing with complex situations that require clear direction and where there are limited options that might be considered “correct”.
  • The ‘spare pair of hands’: This advisor tends to carry out the wishes of the client, relying on the client’s ability to understand the problem.
  • The collaborative consultant: This advisor works with families and other professionals to discover an answer through consensus.

The key is to learn to recognize the three typical types of advisors and find the one that best suits your needs. Each of these advisors has their purpose – and can provide invaluable support in the right situations. But when it comes to dealing with family paradoxes, the collaborative consultant is most often better suited to mediating the unique dynamics of the family farm.

Consensus as a goal

For many of these paradoxes, there is no right or wrong answer. Each family needs to explore its options using an open and transparent approach. So, if you’re looking for a succession expert or family consultant, veer away from those who start conversations with “it is my firmly held belief” or “in my opinion”. Instead, go and seek someone who says, “I don’t have an answer, but I do have a process that will help you to reach a consensus decision.”

To learn more about how MNP can support your family business, contact an MNP Business Advisor near you.