Advisers & Consultants

Tips on interviewing law firms

There are more than 1.3 million lawyers in the United States, so most likely you know, or are even related to, a lawyer you might ask to help with a legal problem or challenge you are facing in your business or family. While proximity and familiarity can be valuable, they are not the best criteria for hiring a lawyer. It is important to understand the correct criteria for making this important decision. 

When do you need a lawyer? Businesses operate in a heavily regulated environment, and litigation, even over trivial matters, is rampant. In addition, the complexities of the tax system, import and export sales and purchases, and the capital raising process could lead a family business owner to conclude that the business needs a regiment of lawyers on hand at all times. For some companies, this is true. But for many businesses, particularly smaller ones, there may be only an occasional need for a lawyer, and the type of lawyer needed will vary depending on the specific issues of concern.

Sometimes, it will be obvious that a lawyer should be called in — for example, if the family needs to raise money for the business or is thinking about an acquisition or sale of the business. Similarly, a lawyer will be needed if a lawsuit is being threatened (or has been filed) against the company, or if the business is trying to navigate a complex regulatory scheme. Estate planning, setting up the basic legal structure of the business and its ownership, and other actions that have long-term ramifications or that cannot be readily reversed are other instances where counsel may be necessary. 

While a business may frequently be able to navigate a legal challenge on its own, if there is any doubt about the best course of action, it is advisable to consult a qualified lawyer.

What kind of lawyer do you need? While some lawyers are generalists, a business should look for a lawyer who has specific experience in addressing the issues at hand. For example:

• If the business is looking to expand its manufacturing footprint, it may want to consult with a lawyer who can navigate zoning and real estate development issues, as well as financing for the project.

• If the next generation is planning to become more involved in the family business, it might be desirable to look for a lawyer with strong corporate and trusts and estates experience.

• An employment lawyer might be the best person to call when negotiating the hiring of a new senior officer.

• If the business is launching a new product that depends on imported components, the call should go to a regulatory lawyer specializing in international trade matters who can advise on whether the new product is subject to customs regulations.

Given the wide variety of practice areas among lawyers, it is important to specifically identify the issues you want to address.

How important is it that the lawyer be experienced in dealing with family businesses? While solving an export or import issue may not require particular sensitivity to family business dynamics, experience working with family firms would be crucial in a meaningful recapitalization or generational transfer of voting stock. If there are several family members in the business, consider whether they all will speak with one voice on the issue. If not, it may be important that the lawyer appreciate the often-complex dynamics of a family business.

Most lawyers work in law firms that offer a range of specialties. While you start by looking for the individual lawyer with the expertise you require, if you will need different sorts of legal expertise, it may be more efficient to find a firm with strength across those areas. A single firm can coordinate the efforts of all lawyers needed to address your matter and may be able to save you money, because there are efficiencies created by lawyers working on a team, dividing duties and sharing information. If this is the case, you should be comfortable with the entire team put forward by the firm, and if you are not, you may be better off using counsel from different firms to work together.

How do I find the right lawyer for the situation?
Ask around. Everyone in your business network has hired a lawyer. If confidentiality is not a concern, reach out to members of your network whose opinion you value and ask for a recommendation. Even if they do not know a specialist in the specific area your business needs, they may be able to refer you to a trusted legal adviser who can make a recommendation. Additionally, third-party reference services such as Chambers USA identify well-regarded lawyers across a range of legal specialties, as can your local Chamber of Commerce. 

Once some likely possibilities have been identified, you should review the websites of each referral to see the work done by the firm or lawyer, as well as the background and training of individual lawyers. You should also search the internet to see what other information may surface.

Make the initial calls. After you have targeted some promising possibilities, contact them to introduce yourself. Plan on spending 30 to 45 minutes on each introductory call to describe your family business and the help you need. In this introductory discussion, ask the lawyer to confirm that any information you divulge will be held confidential under the applicable standard of legal ethics. Because of the ethical rules governing lawyers, they have obligations to keep confidential information provided by prospective clients (subject to limited exceptions) and ordinarily would not need to enter into a nondisclosure agreement. You may want to ask the lawyer to make sure there is no legal conflict that could affect their ability to represent your business before you share confidential information (e.g., if they represent the real estate developer that your business is considering using to build a new facility). If you are unwilling to hire a lawyer or firm that represented a competitor, this introductory call is the time to make that clear.
After the initial call and confirmation that there are no conflicts, you should schedule a follow-up interview where the lawyer or firm can explain in further detail how they would approach the issue and why they would choose that approach, as well as expected costs, risks, timing, staffing and other details.

Prepare for the follow-up interview. Before the follow-up interview, identify your goals and desired outcomes for the representation and be prepared to answer detailed questions about them from the lawyer. Transparency will greatly assist the lawyer in assessing the best approach to resolving your issue. 

Prospective law firms may need to know about the family dynamics at the company. Be candid about any family disputes or tensions because such dynamics will often inform the advice the lawyer will give you. For example, if the company is seeking assistance with raising money for a project, the lawyer will need to understand the relationship dynamics among family members, which could affect whether the required funding could be obtained and the funding terms.

Ask the lawyer for a list of documents required for their review of your matter. Gather those documents and organize them in a format that can be easily shared with the lawyer. You can scan the requested documents and send electronic versions to the lawyer so that you can maintain the original files; however, if a document is particularly sensitive, you may consider requesting that the lawyer visit your office to review the document or describing the contents of the document over the phone.

Interviewing lawyers
When you interview lawyers, questions to ask include:

• What is the lawyer’s experience with similar matters? How many and how similar were they, and what curveballs or unexpected issues arose? What does the lawyer think would be the likely issues that would need to be addressed in the matter at hand?

• What is the lawyer’s experience in the industry in which your company operates? Frequently, although not always, industry experience can be more important than experience with the particular issue. In any event, the lawyer engaged should understand the industry dynamics and legal/regulatory background that are specific to your industry and are relevant to the issue.

• How is the lawyer or firm positioned to handle your matter compared to other firms? Lawyers obviously do not all possess the same skills or have access to the same resources. Ask whether the firm possesses the right mix of professionals to address all of aspects of your matter.

• What is the lawyer’s experience with family businesses? The lawyer should be familiar with the unique challenges and circumstances family businesses face and should be able to navigate them.

• Who will be working on your matter, and what are the respective skills and backgrounds of those people? It is fair to ask whether the lawyer you are interviewing will be the one primarily working on your matter, and whether that person has enough time to take it on. It is important to understand what role the lawyer presenting the pitch will play in handling the matter and whether the other lawyers who may work on the matter have the right expertise.  

• Ask the lawyer to provide two or three client references. Selecting a lawyer is a personal decision as well as a business decision. Consider not only whether the lawyer has the substantive skills you need, but also whether their style and personality are a fit for you and your company.

• How will the lawyer charge for their services, and is there more than one option for how they are compensated?

Checking references
Client references can be powerful predictors of your own experience in working with the lawyer. When contacting references, questions to ask include:

• Why did you select the lawyer (or firm)?

• How did they do in the project?

• Were they responsive?

• Were you satisfied with the outcome and quality of the work received?

• Are there any negative experiences with the lawyer (or firm) that you would mention?

• Was the matter completed within the agreed fee arrangement and schedule?

• Would you use the lawyer (or firm) on other matters?

Comparing fee structures
As with other specialists, different lawyers price their services differently. Consider how much realistically to allocate to legal fees, recognizing that the final cost may exceed the front-end estimate. Also, the lowest hourly rate may not be the most price-efficient solution. Many lawyers are willing to use alternative billing arrangements, including fixed fees, success incentives (and discounts for less desired outcomes) and other approaches designed to align their economic incentives with those of the client.

The type of fee arrangement should be agreed upon in an engagement letter between you and the lawyer (or firm) before work commences. Flat or fixed fees, as well as hourly billing with a cap, are frequently used. Similar to a capped fee arrangement, under an hourly billing fee arrangement the lawyer will bill you based on a set hourly rate for each hour (or fraction of an hour) of work performed; however, there is no cap. The type of fee arrangement that will work for you and the lawyer depends on your budget and the complexity of your matter.

Finally, as you look for counsel, remember that if you are successful, you may be able to develop a long-term relationship with someone who will be one of the most trusted advisers for you and your family. The advantages to you, your family and your business of having that kind of adviser can be invaluable, and certainly makes the search worth the effort it may take.                                     

F. Douglas Raymond III is a partner at Faegre Drinker Biddle & Reath. Vanessa S. Tabler is an associate at the firm (faegredrinker.com).

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.     

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Tips on interviewing philanthropy advisers

Corporate and private philanthropy require daily decisions on a myriad of topics, including governance, grantmaking, employee engagement, community outreach and communications. While philanthropic institutions often expand their expertise and resources as they evolve, an outside adviser can provide valuable support to help them through unique challenges or periods of transition. Advisers come with distinct project knowledge, experience working with a range of clients, a toolbox for solving critical issues and a neutral stance to keep things focused. Whether facilitating board succession, devising a strategic program plan, conducting a landscape analysis or developing a corporate social responsibility platform, hiring a philanthropy adviser might be the most efficient and effective means to tackle pressing concerns.

Do your homework
• Get the board on board. The first step in ensuring a successful experience when hiring a philanthropy adviser is making sure the stakeholders are in sync and there is consensus about what role the adviser will play. Does everyone agree that hiring an outside adviser is important? What amount of time and financial resources will the foundation devote to working with the adviser? Most importantly, what will the scope of work be for the adviser? Lack of clarity on any of these fronts will erode the potential for success.

• The better the plan, the better the results. What issue do you want the adviser to address? What problem needs a solution? The clearer the goals and parameters the foundation provides, the more effective the adviser can be. Think through, for example, whether the adviser will have a primary point of contact at the foundation (either a staff member or a board member). Is the expectation that the adviser might interview various members of the board and, if so, are all the board members aware of this plan and willing to make themselves available? Make sure the timeframe you set for the work is realistic, given the availability of the board members and the scope of work. Identify measures of success as a way to communicate to the adviser what you are looking for and to ensure you have a common understanding of the goal. While you cannot — and probably should not — predict the outcomes, you can be clear about what questions you want asked and your expectations concerning the result. For example, you may not be able to determine in advance if the board will choose a multiyear grant strategy driven primarily by a Request for Proposals (RFP) process, but you can make it clear that you want the adviser to help the foundation arrive at a grantmaking strategy that will both suit the interests of the board and address priority concerns.

• Preparation is good for the foundation and the adviser. Gathering background materials on the foundation (information about the founders as well as its history, grants, bylaws, policies, meeting minutes, etc.) in advance for the adviser to review is a valuable and time-saving step that can provide critical context for the consulting engagement. These materials will accelerate the adviser’s ability to partner effectively with the board and get to the heart of the work. Saving time saves money. Helping the adviser to prepare also builds confidence with the board, as they will recognize that the adviser has done the “homework” on the foundation.

• Define your search strategy. Planning a search and vetting process will ensure an efficient use of resources to find the most qualified adviser. Begin by determining who will lead the search and who will participate at all stages of the process, from the initial preparation and vetting of proposals to the interviews, reference checks and final selection. Narrow your search by developing a position description or RFP that defines the scope of work and the qualifications you seek. Consider asking candidates to describe their areas of expertise, the approach they recommend to address your needs, their fee for service and their payment protocol. Candidates should also provide at least two references. Share the position description or RFP through the many vehicles available for finding qualified candidates, including colleagues who understand your organization’s operations and challenges, trusted sources such as professional networks and membership organizations, and online outlets like your company or foundation website. To address a more complex scope of work, consider approaching firms with an array of specialties. 

Understand the business model
A consulting firm or individual adviser typically determines fees by looking at the scope of work, analyzing the amount of time required to complete the project, placing a value on that time and establishing a total. Note that the fee associated with an individual’s time can vary widely according to factors that are critical in determining the right fit. For example, a consultant’s breadth and depth of experience in the field and expertise with a particular issue may factor into the fee. A more complex project may require a firm to use more than one consultant or use specialized analysts to conduct research. A consultant’s location may necessitate travel to the foundation or sites being analyzed, and fees often vary depending on the adviser’s regional base of operation. Finally, an advisory firm’s size is a factor. A nationally based company with multiple sites and overhead requirements will most likely charge higher fees than a single independent consultant.

An adviser’s billing structure can also vary, ranging from a monthly retainer with an agreed-upon start and completion date and anticipated project deliverables to a flat fee that is payable in installments (e.g., one-third due upon signing an engagement agreement, one-third halfway through the project based on certain deliverables or timeline, and one-third upon completion of the project). An adviser might also establish a set fee plus an additional charge — as per the hourly rate — for work that goes beyond the scope of the agreement. Particularly in more complex cases, consultants build in this provision to account for extra facilitations and research. Additional charges are applied monthly or upon completion of the engagement for travel-related expenses, printing costs and other administrative items.

Questions to ask
When interviewing a candidate, ask questions that not only address their specific experience but also can reveal whether they are a good fit for your organization.

1. Have you worked with an organization like ours before? This question includes but also goes beyond foundation size, board composition and subject matter. Philanthropy is a highly personalized undertaking. You want an adviser who instills trust; one who listens, understands and adapts to the changing needs and varying opinions among stakeholders and integrates well with your learning process (vs. dictating theirs). Although all foundations are unique, a consultant with enough experience across the field will be well-versed in addressing the complexities and nuances of your organization.

2. Have you ever worked on a project like ours? For optimal results, find a candidate whose experience includes projects and/or organizations similar to yours, a respected track record of successful outcomes and a working style that fits well with your organization’s structure and resources.

3. How many other clients and projects will you be handling while you are working with us? Advisers often juggle several projects and clients at the same time. The best ones are experts at time management. However, you’ll want to make sure your candidate is not overextended and has the time to both meet deadlines and be responsive to your needs.

4. How much foundation board and staff time will it take to support your work? Working with an adviser often requires additional staff time to gather data, communicate with board members and grantees and implement changes. An adviser may need to interview key stakeholders and facilitate meetings. Knowing what is required beforehand will enable you to manage internal resources.

Check references
A critical determinant in selecting the best fit is learning from the experiences of others who have worked with this adviser. Ask your candidates to provide the contact information of at least two references. When you call them, ask questions that provide insight beyond what you learned in the candidate’s interview. Were they pleased with the process and outcomes in working with this adviser? Was work completed on time? What challenges, if any, arose during the process, and how they were resolved?

Seal the deal 
After you have selected your adviser, enter into a signed engagement agreement before starting your work together. This agreement should define the scope of work, timeline, outcomes, fees and any contingencies or liability issues.
With this level of planning throughout the search and engagement process, you are best positioned for a positive experience with your new adviser. Your relationship is built on solid understandings and expectations and has the potential to grow into a richer sense of purpose and trust over time as you address your organization’s philanthropic activities and challenges together. 

Robyn Hullihan and Elizabeth Wong are senior philanthropic directors at Foundation Source, which provides support services for private foundations (www.foundationsource.com).  

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.    

                                               

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Tips on interviewing life insurance advisers

The life of a business owner can be a constant stream of decisions — on a varied array of matters such as newsuppliers, employee benefits and potential acquisitions. As a former business owner myself, I can certainly relate. One of the most important decisions you might be faced with is the hiring of a life insurance adviser/firm.

Do your homework
Based on my experience, most business owners ask for referrals from members of their professional network, often other business owners, before reaching out to an insurance adviser about potentially setting up a plan. Questions to ask these professional connections about potential advisers include:

• Are they supported by a team, or is it a solo practice?
• How much experience does the person have in the field?
• Do they have a good reputation?
• Are they compensated up front for putting a plan together?

Of these questions, the first is most important, because I believe the life insurance industry has become far too complex for a solo practitioner to capably manage all of the relevant aspects. So it’s fundamental for a business owner to be supported by a team of diverse experts.

Once you’ve decided to interview prospective advisers, I recommend gathering any personal financial statements or business agreements, including buy/sell and partnership agreements, personal and corporate tax returns, and any estate planning documents, even if they’re incomplete.

Understand the business models
I also suggest becoming familiar with the two main types of business models for insurance firms: mutual and stock. Mutual companies are owned by policyholders, while stock companies are owned by shareholders and must serve the interests of stockholders as well as policyholders.

At mutual insurance companies, policyholders elect the board. In contrast, stock companies have no policyholder representation on the board.

Today there are more stock companies than mutual companies. While mutual companies’ income is generated from policy premiums, stock insurers have more opportunities to raise capital.

It’s also worth noting that some insurance firms might focus on certain niches and markets, such as underwriting only very large cases or focusing on clients under age 50.

Life insurance premiums are determined primarily by the age and health of the client. Other considerations affecting premium rates include the amount of coverage needed and the purpose of the insurance. For example, rates might be impacted by whether the insurance is intended to pay an estate tax, supplement income to employees, or function as deferred compensation or an executive bonus.

I would also caution business owners to be aware of the products being offered and presented. Some products are developed to take advantage of market trends and could place more risk on the policyholder if market conditions or interest-rate environments don’t meet the initial estimates. Trendy products come and go, but people buy life insurance based on the idea that it will be there when they really need it, years down the road.

Questions to ask
When you’re ready to hire an insurance firm and work with an agent or adviser, there are three main questions to consider:

1. What do you offer that my current insurance adviser/firm might not? If a business owner is looking to make a change rather than hire an insurance firm for the first time, this tends to be the top question on their mind. One of the chief differentiators among firms is coordination of efforts. If a business owner is considering a change, they typically already have an investment adviser, insurance adviser, accountant and attorney, but they’re getting fragmented advice because those people hardly ever sit down in the same room together. An approach that encourages them to coordinate with each other will almost always benefit the client.

2. What is your process? For example, does a confidential gathering of client and business information occur? How about significant conversations focused on what’s most important to the business owner’s company and family? I also recommend finding out how much time the adviser/firm devotes to collaboration with legal and financial team members, as well as whether they provide a service model that addresses business changes and the ever-evolving landscape of estate and tax law.

3. How long will it take? In my experience, this answer depends on how engaged the business owner is and how much work needs to be done. For instance, if the person’s only need is for a life insurance plan, that process can be relatively quick. But if buy/sell agreements must also be redone or tax planning assistance is required, the time frame could certainly be longer. Generally, planning cases can take anywhere from a month to a year, followed by ongoing service related to legal changes or new business developments.

There’s one final piece of advice I’d like to offer: Trust your network for appropriate referrals and references and find an adviser who truly has your best interest at heart and will put it ahead of their own. The points mentioned above are all helpful, but try to get a feel for the adviser as a person, too, because that relationship aspect goes beyond fees, processes and plan details. 

Martin Valentic is a financial professional and chief marketing officer with Penn Mutual’s Pittsburgh-area agency, 21st Century Financial.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.                                                                 

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Tips on interviewing executive search firms

Even if you have a deep bench at your company, there are times when an internal candidate is either not ready or not right for the leadership role you need to fill. Today, because of a high demand for top talent, the market favors the candidate. Finding talent is challenging, and finding the right leader is even more so. An executive search firm can help you find the best person, but first you must find the right firm for your organization’s needs and culture.

Do your homework
• Define the role you seek to fill. Consider what the job will be in the future based on your company’s strategy. NHL star Wayne Gretzky frequently quotes his father, Walter, as saying, “Skate to where the puck is going, not to where it has been.” Think of the skills you need to take your company to the next level. What will be the impact of the role?

• Force-rank the qualifications for the position. Distinguish the “nice to haves” from the “need to haves.” There may be a candidate who does not meet all of the qualifications but is a strong cultural match. Would you consider surrounding the person with the resources that will bridge the gap?

• Gather important documents. To present your company’s profile in the best light, pull together a position description, an organizational chart, bios of relevant employees (including peers of the position and those to whom the new person will be reporting) and compensation details. This is critical for family-owned and privately held companies, since much of the information the recruiter and potential candidates will need is not publicly available.

• Ensure there is buy-in and support for the role from key constituents and family members in the business. Alignment is critical between all parties before a search is initiated. If there is not buy-in, a strong candidate will often notice a disconnect during the interview process. This may raise potential concerns from the candidate and could sway their interest in the role. Ultimately, if there is not agreement and support for the position, this could impact the success of the new hire.

• Decide what kind of experience you want your search partner to have and screen several firms. Do you need an industry expert, a functional expert, a generalist firm, a large firm or a boutique? Research the firms and seek out referrals from your network. When you receive them, ask why the firm is being recommended, inquire about the client’s personal experience with both the firm and the specific recruiter, and ask what they would have changed about their experience to improve it. Reach out to several search firms and ask for their marketing materials.

• Have your internal process outlined and ready to be activated. Identify search committee members and select an individual who will serve as the central contact for the search firm. Determine what type of feedback you desire from your search partner during the process and the frequency of status updates. These preparations will help you decide if a search firm will meet your expectations.

Understand the firm’s business model
Like other consulting firms, a retained executive search firm is engaged for its advice and expertise. The firm is paid a fee based on the position’s targeted compensation. The search firm works exclusively on behalf of the client with no other firm involved. This protects the client’s best interest and will avoid confusion in the market.

A contingency firm’s fees are also based on the targeted compensation but are paid only after someone is hired. The firm may not exclusively be working on behalf of your company and may share candidates with other companies to generate revenue. Many candidates will not allow a contingency firm to represent them in the market for fear of losing confidentiality.

The majority of searches for leadership and executive positions are conducted by retained executive search firms. Contingency firms are more commonly engaged for lower-level roles.

Questions to ask
• What are your success rates? Metrics may include completion rate, client repeat rate, diversity placement, average length of completion time, the number of blocked companies (those companies that the firm cannot source because of a current or previous engagement), and retention rate of hires. Ask about any failed searches and what led to such an outcome.

• How will you get to know our company? Who will spend time with your team to learn about the organization and culture? When engaging with strong candidates, your search partner must be able to properly represent your company and the job opportunity as well as talk about your leadership team.

• Who will be doing the search? Ask to meet the search consultant(s) who will be representing your company in the market. Will they make a good impression on your behalf? How will the firm position your company/brand in an effort to draw candidates who may not be familiar with you?

Candidates will be exposed to the recruiter on the phone, through email and in person. During your screening process, consider how the recruiter makes you feel. Are they energetic and enthusiastic? That is what your potential candidate market will experience.

Find an executive search firm that views itself as your long-term partner. Choose the firm that is dedicated to bringing you talent, no matter how hard the search is or its duration. Engaged recruiters are transparent and want your input.

Review your current recruiting process with your chosen search partner to identify what might be improved. During the search, be prepared to respond quickly to questions from the firm. Additionally, once the search is under way, providing timely feedback on candidates is essential. The more information a search firm has, the more quickly they can hone the search and find the right candidates.

Your interviews of search firms will help you choose the right one. A good recruiter knows how to find candidates, but an excellent recruiter can balance the science of recruiting with the art of identifying and securing talent.

Engaging a search firm is investing in your business. If you buy capital equipment, its quality should be worth the investment. Keep the same level of expectation for your search firm, since these professionals are finding your future leaders.

Lee Ann Howard is the founder of Howard & O'Brien Executive Search (lah@howardorbrien.com). Tina Darcy is a partner at Howard & O"Brien Executive Search (tina@howardobrien.com).

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com

                             

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Spotting the differences

Growing up, I looked forward to receiving the latest issue of Highlights magazine, the publication whose family owners are featured on the cover of this edition of Family Business. I would immediately turn to the Picture Puzzler page, a section that contains two seemingly identical pictures with a task to find the differences between them. Today, my two young daughters, who are now subscribers to Highlights, experience the same excitement when the newest issue of the magazine arrives. Like their father, they immediately turn to the Picture Puzzler page. Unlike their father, they can usually quickly spot all the differences.

Over the years, working with our great team to put together issues of Family Business, our handbooks and our Transitions conferences, I have tried to look for the differences that distinguish successful family businesses from unsuccessful ones. Of course, there is a large body of general business literature on this subject, including some of my favorite books like Good to Great, by Jim Collins; Scaling Up, by Verne Harnish; and The Hard Thing About Hard Things, by Ben Horowitz. Likewise, there are numerous books about how to improve family dynamics. These books frequently address ways to create a lasting values-driven culture that provides long-term value to the shareholders and other stakeholders.

Many of the successful family businesses we cover have recognized that the right advisers are key to helping both create a sustainable business and improve family dynamics. In addition to finding the best board members, choosing the right third-party advisers — such as consultants, investment bankers, financial advisers, accountants, lawyers and executive search firms — has become more critical in a time of increased specialization. All too often, for many family businesses, the selection of an adviser is done through very informal means and the decision shaped with minimal understanding of the differences among them, some of whom appear to actively strive to ensure their terminology is opaque. (Do we really need the many acronyms some advisers use, or are they just ways to confuse and shift the power dynamics?) Moreover, many family businesses struggle to understand the best way to conduct due diligence on potential advisers, question whether and when they should switch firms and wonder how best to ensure the myriad of different service providers work together as a team.

Family Business has introduced a new section, called “How to Hire an Adviser,” to help readers better understand the benefits of hiring different types of advisers and the different business models among them. The section, written by leading advisers in a variety of disciplines, also provides a list of potential interview questions to help ascertain whether the firm’s interests and goals align with yours. This issue features advice on hiring a compensation consultant from Bertha Masuda of Compensation Advisory Partners. Getting these “inside views” is incredibly helpful, and I’ve already used some of the interview questions in recent discussions with potential advisers. Armed with more knowledge, I’ve found it easier to spot the differences among service providers.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Tips on interviewing compensation consultants

Pay decisions and processes are key components of a company’s talent strategy. As your company’s overall business strategy evolves, so too must its pay philosophy and programs. Leaders often rely on their own experience or on their boards for compensation advice. However, there are times when an outside compensation consultant can be a valuable resource. Consultants not only have up-to-date market data but also can independently think through your compensation issues, develop solutions and help implement them. 

Do your homework
• Define the scope and expected timing. The scope of work and the timing of the project are often clear (e.g., competitively assess executive compensation and develop a long-term incentive plan). However, at other times the scope can be broad and somewhat nebulous. Taking the time to define the issue and desired outcome up front will save you time and consulting fees in the long run. If the issue is broad, segment the work into phases so that you can track progress against project milestones. For example, if your company wants to ensure its pay programs are fair and equitable, it’s important to determine the population to be studied, identify the specific pay programs for review and clarify what the terms “fair” and “equitable” really mean to you. You should also determine approximately what the project budget should be.

• Gather data. Pulling together documents will help you define the issue and get the consultant up to speed quickly. Consultants will typically ask clients for an overview of financial performance, strategic plan, organization chart, job descriptions and pay history for relevant positions, incentive plan documents, and tenure and turnover statistics. Before you disclose this information, be sure to get a confidentiality agreement in place.

• Understand your internal decision-making process. Understanding how you and your organization make tough decisions on key issues can inform the consultant selection process and project timing. A more consensus-driven culture requires a consultant who is comfortable soliciting different opinions and skilled at bringing together different perspectives to forge a solution. However, more perspectives and facilitation usually mean a longer project process and higher consulting fees. For a more targeted process (for example, where winning over the major decision-maker or most vocal shareholder is key), select the consultant whose style and process closely approximates the decision-maker’s.

• Study up on the firms. Your professional network can refer you to a consultant. An internet search can reveal more options. Review the consulting firm’s website to see if its principals have written articles or given presentations on the issue you’re facing. Ask consultants who pass this initial round to submit a formal proposal.

Understand the business model
Your project can be quoted on a fixed-fee or on a time-and-materials basis. Fixed-fee projects tend to be well-defined and standard (e.g., benchmark 30 positions). For more complicated projects (such as developing and gaining shareholder approval of a new long-term incentive plan), consultants may encounter facts and circumstances that require more analysis or facilitation. In these cases, consultants will give a project estimate based on what they know at the time of the proposal and bill on actual time.

If the firm is quoting a fixed price, ask whether there are embedded assumptions that could result in the actual fee being higher than the estimate. Assumptions could include the number of in-person meetings and report/concept iterations.

Some consultants seem to charge low consulting fees because they are compensated on the back end through the products or services they sell. For example, a firm offering to design a long-term incentive plan for a low price may have a predefined plan in mind that utilizes insurance-funded products from which the firm earns a commission. Such a firm may seem appropriate but will not necessarily be the ideal partner if you need an unbiased assessment of all long-term incentive plans that could be considered.

Questions to ask
When interviewing consultants, ask questions to help you understand their level of experience and depth of knowledge.

1. What is the consultant’s experience with family-owned and private companies? Unlike publicly traded companies, family-owned and private companies are niche sectors where data is hard to come by.
Experience with the interpersonal dynamics among family shareholders or private company owners is paramount to project success. Consultants should demonstrate that they are familiar with the issues faced by closely held companies.

2. What is the consultant’s expertise with your company’s area of concern? Compensation can be segmented into different categories. You will want to do a deep dive to ascertain that the consultant has relevant experience with:

• Companies of similar size in your industry
• The employee segment being assessed (board of directors, executives, all employees)
• Your talent issue (pay competitiveness, recruiting, retention)
• The pay program (salary, annual bonus, long-term incentives, deferred compensation, benefits)
• Specific situations (succession planning, anticipated sale, initial public offering, turnaround)

Evaluate the proposal
Consider the following questions when reviewing a firm’s proposal:

1. Has the proposal accurately defined the scope of work and project deliverables? This will tell you whether the consultant was listening to you and understood the issues.

2. What is the project approach and time frame? Are you comfortable with these? Do they seem reasonable?

3. What is the consulting firm’s bench strength? For some companies, a local boutique firm may be appropriate. For other businesses, a national firm is the ideal fit. National firms have access to multiple and/or proprietary survey sources and professional networks. They have experience with specific company situations (e.g., initial public offering, turnaround, company sale) and with clients who have financial sponsors. As your company evolves, a national pay partner can be your guide in planning for the future.

4. Who from the firm will be working on your project? Will the partners do most of the work, or will the firm highly leverage its junior staff? Is the personality of the consultant who will work with you a good fit with the personalities of your key decision makers or shareholders?

Check references
Ask prospective consultants to give you client references. This will enable you to assess whether what the firm told you during the vetting process matches what other clients have experienced. Questions to ask references include:

• What was the reason for your compensation study?
• Who worked on the project? Did the staffing follow the proposal?
• Were you happy with the process and results?
• Was the project delivered on time and within the stated budget? If not, what happened?
• Would you use the consultant again?

Be candid
Once you’ve engaged the consultant, be open about your challenges. The consultant can’t read your mind or uncover your hidden agendas. An understanding of the issues gives the consultant an opportunity to find areas of alignment and keep the project moving toward a solution.

While you may initially hire a compensation consultant to address a specific issue, the person can become a trusted adviser over the long term. Having the right pay partner as your company evolves will help you confidently address your talent challenges and ensure your employees’ interests are aligned with those of your shareholders.                                                                 

Bertha Masuda is a a partner at Compensation Advisory Partners, Los Angeles, Calif. (capartners.com).

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Tips on interviewing financial advisers

Do your homework
• Determine your advisory needs. Do you require financial planning, estate planning and trust services? Will you need lending, insurance, philanthropic and tax planning advice? Do you want assistance with business governance and succession planning?

• Write down your expectations of your wealth adviser. Be able to clearly describe what you are seeking. Prepare an evaluation “scorecard” in advance and decide which will be the most important factors.

Understand the business models
The business model of the firm you select will influence the products the firm sells and the services it offers — and thus your client experience. All business models have benefits and limitations.

• Asset managers. These firms generally sell their own money-management services. Assess whether the services included — such as retirement income planning, asset allocation and tax and trust education — offer adequate breadth and expertise.

• Trust companies. A trust company is a legal entity that manages trusts, trust funds and estates and is often attached to a bank. The better ones have extensive trust, tax and planning expertise. Investment results can vary widely.

• Registered investment advisers (RIAs). RIAs are independent entities that have registered with either the Securities and Exchange Commission or a similar entity in their state of domicile. They have a fundamental obligation to act in their clients’ best interests. Most RIAs affiliate with large custodians for products and support. The segregated operational aspect adds a level of administrative complexity.

• Large banks. Banks that offer a broad array of products may be preferred by those who prize choice and convenience. Many consumer-oriented banks with a primary focus on traditional banking products may fall into this category.

• Ultra-high-net-worth units of banks and financial services firms. The units tend to have fewer clients per adviser than traditional brokerage firms do and are staffed by better-trained professionals.
Your team of advisers should cover the array of important matters and should have enough knowledge to discuss their colleagues’ recommendations. Income tax, estate tax, insurance and investments are the core four areas. Lending, legal structures, deferred compensation and employee benefits are a plus.

Questions to ask
When interviewing, take notes. Summarize your understanding and email it to the adviser. Ask for clarification on points you’re not sure you understood.

1. How does the advisory team get paid? Does compensation vary based on the asset or product mix? Alternative investments, structured notes and insurance are usually not included in these fees. If multiple fees can be layered, be leery. Compensation drives behavior.

2. Do the adviser team’s experience, knowledge and training exceed your needs? Do the products and services span all your current and future needs, or just the most important for today? Request samples of work product that meets the complexity of your needs. For example, you could request sample financial plans or flow charts, or hypothetical asset accumulation and distribution illustrations. This will give you a sense of the depth and sophistication of the planning.

3. What objective methods does the firm use to measure proficiency? No firm or adviser does everything well. Ensure that the firm you choose has expertise in the services you require.

4. Which services are provided, how frequently and by whom? How often will you meet in person? Who will be the primary contact for administrative items, and who will give the financial advice? How quickly does the adviser team return calls and emails? Answers to these questions offer insight into the client experience. Make sure that the day-to-day experience includes clear reports, an up-to-date website and, when preferred, intelligent human interaction.

5. Is the adviser a fiduciary (i.e., is the adviser obligated to put the client’s interests above their own)? Does the firm operate only on a fully disclosed transparent cost basis (including fees and other adjustments)? Under what circumstances might the adviser act as a principal or a broker? These questions will help you understand the adviser’s abilities and economic motivations. For example, some clients prefer to buy and hold a stock or bond without incurring a recurring fee. In this instance it would be preferable if your fee-based adviser were also able to act as an agent or “broker” and receive a one-time fee.

6. What are the all-in costs? How might the costs change as the portfolio changes? Some firms entice prospects by initially recommending low-cost investment products, only to change down the road.

High-quality wealth management firms generally charge between 0.75% and 1.5% on assets under management. (See Michael Kitces, “Financial advisor fee comparison: All-in costs for the typical financial advisor?” Kitces.com, July 31, 2017.) If the fees are lower, ask how the firm is making up the difference.

7. In addition to the above questions, ask for references. While you will never be given the name of someone who will offer a bad recommendation, it’s still worth it to call the references. If the firm offers the names of sophisticated, experienced professionals who have worked with the advisers for a long time, it is a good indication.

One vs. multiple providers
Having more than one financial adviser can be a good idea, but only if you are willing to invest the time to balance what you hear from the various providers and sift through the differences.

Despite the limitations, I recommend selecting one high-quality firm as your financial adviser. Enlist your tax, insurance and other advisers to be the “watchdogs.” Once a year, ask all advisers for their opinion of each other. Good advisers will tell you the truth. Weak advisers should be replaced.

Christopher F. Poch is a private wealth advisor at Morgan Stanley Private Wealth Management, advising private clients and family offices. He has managed international private banking units, advised billionaires and heads of state, and served as the chief executive of a trust company (christopher.f.poch@morganstanleypwm.com).

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permisison from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

 

The emergence of family enterprise as a global, multidisciplinary field

Since the beginning of commerce, families have pooled their capital and ideas to create value through economic exchange. Yet curiously, the field of family enterprise research and advising is only between 50 and 60 years old, depending on which point is counted as the beginning.

In my own lifetime, the field has grown from a solitary program in Cleveland at a Center for Family Business begun by Léon Danco in 1962 to hundreds of academically affiliated centers around the globe, supporting research and bringing groups of families together. These are part of a constellation of services to families who are bound not only by familial relationships but also by economics.

Over time, the field has become more rigorous in research and more specialized in services within and across disciplines, including law, wealth management, accounting, mental health and consulting. Even as things have changed, practitioners have continually aimed to identify the tacit behaviors that get in families’ way and encouraged them to establish practices that help. This can involve creation of legal documents and family meetings; implementation of methods, tools and techniques; and attendance at family business conferences and educational programs.

We’re still trying to figure out what it takes to intentionally, beneficially navigate the most central relationships of life — the family — in the context of the business that sustains their livelihood, or the resources they need to manage their households and contribute to the world. The issues are complicated, and the stakes are high. We’ve made substantial headway, but there’s still a distance to go.

From a slow start, there is now recognition and documentation that family enterprises can perform better than their non-family counterparts in terms of both employee satisfaction and profitability, including return of capital. That is to say, family enterprises can perform better, but they don’t always.

Pioneering thinkers
In the 1980s, a critical mass of people in various academic institutions, mostly in business schools, completed dissertations on family businesses and started teaching programs focused on the topic. This was no small endeavor. At the time, the study of family business was not an established academic discipline, and a path to success was not assured. Still, Harvard, Loyola, Yale, the University of Southern California, Wharton and others developed pockets of research and teaching. These like-minded thinkers convened often in an effort to understand what makes family businesses special and different. This may seem obvious: duh, it’s the family. But digging deeper, important questions needed to be answered: How, why and when do thorny family issues complicate the business?

Beginning in the late 1970s, the study of social systems came into increasing prominence, with new research and new application. By “social systems,” I mean a focus on the interaction of parts of a group, often a group with a shared set of norms and culture. Prior to systems thinking, research centered on individuals or individual phenomena — a person, a leader, a problem child or an economic asset. A principle of systems thinking, for example, is that a family as a group of individuals has particular characteristics as a result of how the individuals interact with each other and the family’s history. Family systems theory, organizational or management systems theory and economic systems theory all received some fresh attention and, taken together, gave us a new way to make sense of families in business. We had a way to think about the whole, and then offer insight from that thinking.

In 1985, the first conference for people who study and work with family businesses was organized at USC by John Davis and attracted roughly 25 people. It was an exciting convening of a disparate group of researchers and practitioners with a lot of questions across the spectrum of domains that touch the family enterprise. Differences in perspectives were part of that mix and made clear the aspiration that the developing field could foster more collaboration than competition.

Annual conferences, attracting thinkers mostly from across the United States, became the norm after that meeting at USC. As a new professional, I volunteered to host the second conference at Wharton, in 1986. Attendance had to be limited to 75 — the capacity of the conference facility — though many more expressed interest.

The Family Firm Institute was launched in 1986, bringing to fruition the idea of an independent, multidisciplinary institution that could encourage research, teaching and improved practice. The founding of FFI was further evidence of a field on the verge of explosion.

An evolving field
The evolution of a field has many identifiable highlights, but two in particular come to mind with regard to family enterprise:

1. The globalization of thinking, including concepts that are commonly held and those that are particular to culture and geography.

2. The specialization of knowledge, with deep expertise in each of the disciplines that make up a truly multidisciplinary field.

Obviously, family enterprise occurs around the globe. In the 1980s, just as FFI got its footing in the United States, the rest of the world was simultaneously developing centers of influence and learning from families who had been in business for many hundreds of years. FFI’s journal, Family Business Review, established in 1988, publishes family enterprise research from contributors worldwide.

Today there are thousands of practitioners working with family businesses. These professionals help families manage their wealth (both growing it and using it for philanthropy) and their relationships. They take into account the political and social climates in which the families operate, while bringing all that has been learned from a systems perspective into their work.

As our field has matured, so has the interest in “going deeper” into what we know and can learn through specialization of knowledge and practice. Family organizations themselves are more savvy; families want assurance that their advisers know what they’re doing. This deepening of specialization necessarily calls out the need for collaboration, so that the whole of families and their economics is not lost.

Just as FFI and its journal have served advisers and researchers, Family Business Magazine and its conferences have served enterprising families, providing them with a safe and supportive environment to share their experiences.

The field of family enterprise will continue to evolve as long as families choose to pool resources for their common benefit. Practitioners will help them increase their capacity to deal with differences of view and perspective. This is a field where one kind of expertise may be necessary but is rarely sufficient. Over the years, rich research has been put into practice and then evaluated and adapted through a feedback loop across these and other disciplines:

Law: Not just corporate law but also estate and tax planning as well as evolving definitions of lineage.

Accounting: Personal and corporate accounting as well as management of wealth from diverse sources in ways that enable continuity.

Strategy: Taking a long-term perspective, unearthing the economic rationale for continuing a business or liquidating to create something new, establishing links across differences when the hope is to retain liquid wealth collectively, establishing a common purpose and philosophy for the family’s philanthropic activities.

Therapy: Making connections between both individuals and groups, when groups grow (family branches, generations), to find meaning and development.

The depth of research in each discipline is stunning. And yet as conclusions are drawn, their application demands adaptation once the research is applied in real life. Our field has produced modes of mutual learning across these domains of expertise — even with the complexity we encounter — because fundamentally we’re all in it to help as much as we can, in the best ways we can.                   

Nancy Drozdow, based in Philadelphia, is principal and co-founder of CFAR (www.cfar.com) and a founding member of the Family Firm Institute.

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

Family therapy's influence helped advance the family business field

Until a little more than a century ago, the term “family business” was redundant, because every family was also an economic unit. Children were taught their parents’ trade and were expected to make it their career. The family business would often last for generations, but the family would not expect it to grow.

By the late industrial age, huge public businesses had begun to emerge. These companies were seen as an improvement over the small, often conflict-ridden businesses owned and run by families. The family was considered an impediment, and the family business was considered a stunted or immature form of commerce.

In the 1980s, the field of family business emerged from a realization that family relationships, rather than being detrimental, could enrich and add value to a business. Advisers and scholars began to look at the positive and negative fates of family businesses in an effort to understand what led to ongoing survival and success.

Because a family business has owners who are related, they can adhere to a set of shared values and a long-term perspective that holds the business to a higher standard than just making profits for the family. The field of family business grew up as society came to see that these virtues are frequently absent in public, non-family-controlled businesses.

As the business world began to affirm the value of family ownership, researchers discovered ways to help the family realize these benefits and avoid descending into conflict or using the business as a personal piggy bank. Family business advising has grown up with the proposition that research, models, tools and practices can help a family overcome the dangers of business ownership and enjoy the benefits.

The field of family business would not be what it is today without the application of knowledge about families from family therapy and systems theory. Family dynamics concepts enable us to understand and resolve difficulties arising in families who aspire to continue their businesses through multiple generations. From its inception, family business consulting has urged professionals — lawyers, accountants, business consultants and financial advisers — to learn the basics of family dynamics and some of the tools used in family therapy.

I want to share some of the fundamental elements of this foundation.

Insights from family therapy
First, family and business systems have different goals and purposes that can conflict with each other. In a high-functioning family, everyone is accepted, and the family will go out of its way to care for its members. Business relationships, by contrast, are conditional and structured into roles. Members of a business system are held accountable: If you don’t produce, you can be fired.

Family members in a business family must learn to navigate within multiple, overlapping roles. While they are always family members, they may also be co-owners (or owners-to-be) and employer/employees. If your boss is your father, you must understand that during business hours the rules of the employee/employer relationship are in force, not those of the family. This is a challenging concept, and many families do not want to differentiate family and business roles. But a family must learn to make these distinctions in order to succeed as business owners.

A second foundational principle is that the family is a hierarchy — a pecking order with parents at the top and children further differentiated by gender roles and birth order. Family members live within the family hierarchy and tend to transfer these relationships into the business. Business families must understand the pull of the family hierarchy and take steps to diminish it in favor of very different business relationships. In the context of the business, a family member (for example, the youngest child) might have a business role and authority that supersedes their family role.

A family might need to go through an awareness and learning process to help them move across this boundary. Tools like drawing a family genogram (family tree diagram) to illustrate the hierarchy and discussing how this family structure influences family behavior are helpful. Family members might talk through the roles and practices in the family and consider whether they must be minimized or changed when entering the business environment. Siblings, for example, must transform their rivalry into collaboration when sharing ownership of a thriving business, even if some work in the business and others are beneficial owners.

A third challenge involves the tension between long- and short-term perspectives. The family wants to use its resources to help each other now, to support family members and benefit their lives. But they also must reinvest and consider what is needed to sustain the business for a new generation. This is a source of tension, where family members take on different perspectives. The family must balance these differences and reach agreement on a fair distribution of current and future resources. This has been referred to as establishing policies for “family justice.”

Family business consultants have learned from family therapists how to convene meetings that bring together family members across generations to discuss differing perspectives and create policies and structures to manage the shift between family and business roles. An effective family meeting is more than a business meeting; it must be a place where every family member feels a psychological sense of safety, and where their ideas and feelings are valued and respected. This setting helps family members build communication skills and discover together how to bridge differences.

Because of input from family therapy, family meetings have been expanded into structures such as the family assembly (a gathering of the entire family), the family council (a representative body that oversees the family’s relationship to the business), and the owners council (adult family members who hold shares in the business). In parallel to the business governance provided by boards of directors or advisers, family therapy practices have been adapted to build family governance.

The key insight from family therapy is that family business encompasses both an effective business and a caring, respectful family, enabling the business and the family members to thrive and grow. These two entities do not work at cross-purposes. They harmonize, and the best features of each add value to the other. Neither is subservient to the other. Together they each contribute to a hybrid family-business institution, which can create value that transcends what each entity can do alone. That is the promise that has been fulfilled in this emerging field.                                                       

Dennis T. Jaffe, Ph.D., a professor emeritus at Saybrook University, is an organizational consultant and clinical psychologist. As a member of Wise Counsel Research Associates, he is conducting a study of the resilience of 100-year family enterprises, which so far has resulted in five working papers (www.dennisjaffe.com).

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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