How to Hire an Advisor
Are you up for one of the biggest decisions you'll ever make?
Many family businesses look for outside help when dealing with interpersonal conflicts that become business problems. And a growing band of people who call themselves advisors are all too happy to service them, for fees that frequently reach several thousand dollars a day.
Because fees are so high and licensing is nonexistent, it's not surprising that family business consulting has attracted its share of the good, the bad, and the downright ugly. For a company in distress, survival may depend on the ability to distinguish between the highly skilled consultants and those whose primary interest is in financing their second home on Hilton Head with billings from your account.
What are some guidelines to ensure your family gets the best help available?
- Define the problem, in writing. "Difficult as it is, you must do it," says James H. Kennedy, who has monitored the consulting industry for more than 20 years as editor of Consultants News, published by his family's business. "If you can't write it down, you are not prepared to face it," he says.
The consultant may disagree with your definition of the problem. "It happens all the time," says Peter Davis, director of the Division of Family Business Studies at the Wharton School. "A client says 'We need to establish ground rules for entry of the third generation.' And after five minutes with them it becomes clear that it's the second generation that's in chaos over family issues," he says.
- Build a family consensus. Your family must acknowledge that a problem exists and be willing to accept outside help. Reaching a consensus to seek help is often a gradual process. It might require some one-on-one politicking with family members. Take family members to a seminar on family business at a nearby university, or get them to read books or periodicals that discuss family business problems. If they overcome their feelings of isolation, they'll start to see patterns, themes, and issues at the company that need to be resolved.
- Seek referrals. Ask other family businesses, your lawyer, accountant, or other professionals for prospects. Check with local universities to see if they have family business programs. If you have attended a university program, look up some of the other attendees you met. Check with your industry association. Find out if there is a family business network in your city or region and talk with people there. The Family Firm Institute (telephone 518-762-3853) may be able to give you a list of people in your area with the specific expertise to address your problem.
- Write to prospective advisors. Describe your company and the general problem, and invite their interest. Ask for their qualifications, how soon they can begin, and an indication of cost.
- Evaluate the responses, put together a short list, and start interviewing the candidates. "At the interview, have your spouse present and any other family members crucial to the business," says Richard Narva of Genus Resources in Boston. It helps avoid the feeling that the consultant is being brought in by one family member and is on that member's side. "The consultant must be viewed as neutral," says Kennedy, "otherwise he cannot be effective."
It should also be clear that there is no conflict of interest-that the advisor is not selling you something else, legal services for instance, in addition to the family advisory services.
You should be confident in an advisor's skills and sensitivity to the issuesand a high level of personal chemistry should exist between all parties.
When meeting a candidate, ask him to submit, in writing, his assessment of the problem, his recommendations, and the cost of his services. Beware of any consultant who promises you the moon, or guarantees results.
- Check references. This is probably the single most important way to verify an advisor's competence.
Family business issues are multi-dimensional. Many troubled firms require both the skills of a psychologist and the expertise of an estate planner. Narva suggests you only deal with advisors who can marshall both the technical skills, such as law or finance, needed to deal with business, and the interpersonal skills needed to deal with families.
Does the advisor have experience in dealing with situations like yours? Don 't let claims of confidentiality dissuade you from insisting on speaking with some previous family clients who had similar problems.
- Study the advisor's initial proposal. Be sure it is specific. If you don't understand something, ask questions especially about fees. There should be complete disclosure of the fee structure, whether it is a flat fee, hourly, daily, or weekly, and how expenses are to be handled. Follow the formal proposal with a letter of agreement so there is something in writing with which to resolve any future questions.
- Do not base your decision strictly on price. Though fees range widely, they are all high. Leon Danco, considered by some to be the dean of family business advisors, reportedly gets up to $20,000 per day. Other specialists command up to $3,000, and lesser lights charge $1,000. "It will seem expensive," says Kennedy, "but how much do bad situations cost?" It's not much use to haggle; consultants are usually firm on rates. If you want an ongoing retainer relationship, however, you might be able to get a break. Kennedy says that once you are over the sticker shock, be sure to ask other questions related to cost, such as anticipated expenses.
So, who is it going to be? Don't let the selection process become an excuse to procrastinate. It's worth the trouble to find the best advisor you can.
Louis Moscatello is a senior editor at Family Business.