You’ve decided it’s time to get serious about writing an estate plan. You call your lawyer. He comes up with a neat arrangement involving elaborate trusts that will keep your taxes to a minimum and protect your company’s assets. However, you are unsure how the plan will affect certain family members and the business’s cash flow. So you decide to run the plan by a family business consultant and your CPA. These advisers may react in one of two ways. They may point out significant flaws; if so, you’ll have to send the plan back to the drawing board, which will cost you. Or they may not raise serious objections because they don’t want to make the attorney look bad, themselves look self-serving, and you look foolish. Either way, you lose.
The piecemeal use of advisers in this case results in a higher cost to get the job done right, or a tax-driven estate plan with weaknesses that could hurt business operations and divide the family with business control and leadership conflicts. But if the advisers had teamed together from the start, the resulting plan would be better and cost less.
The most critical tasks facing family business owners frequently demand coordination among professional advisers. Getting your advisers to work as a team can be vital when confronting major issues that require sustained attention, such as estate and succession planning or a restructuring of the business. Furthermore, an adviser team can be helpful whenever a matter involves simultaneous consideration of both family and business interests, such as evaluating an acquisition that might significantly affect the equity position of current and future family members, creating a new shareholders’ agreement, or responding when a key family member suddenly announces he is leaving the business to establish a competing enterprise.
The problem with using a single adviser on complex issues that affect ownership and control as well as family interests is that each adviser tends to approach problems from a single-minded perspective, without equal consideration of other relevant disciplines.
Advisers are predisposed to be dysfunctional team members. They are as difficult to herd as alley cats. They gravitate to their professions for many reasons, but chief among them is that they like to operate independently. Due to their training, different advisers can look at the same family firm and see different priorities. Management consultants tend to view the business as a system of relationships or a structure of roles. Accountants look at the parts of a business in terms of value or lack of value. Lawyers see a network of contracts. At the same time, these experts may compete for “most-favored adviser” status in the eyes of the client (you). As a result, they may be reluctant to compromise on objectives set by a team, which are likely to be best for you. The irony is that bringing together their unique perspectives is often exactly what is needed to solve complex issues.
When I suggest an adviser team to clients, most of them say, “Advisers are expensive, so I avoid getting them together. And they’re hard enough to manage one at a time, much less in a group.” If your advisers are working on a truly integrative issue, however, teaming them up early can actually reduce the expense to you and yield a more secure and valuable result. But how can a bunch of cats be herded together as a team, at least for a short time, and work productively? My experience has been that the business owner has to take the initiative. The challenge is to figure out which situations can benefit from an adviser team, which advisers to place on the team, and how to get them working together.
When to form a team
A team of advisers from multiple disciplines who work together over extended periods of time will be expensive, usually affordable only by larger companies. Unfortunately, family business complexities are not restricted to larger firms. Smaller companies can still afford an adviser team, however, if it is created when an issue first begins to arise. If convened early, the team members can organize a coordinated effort, then pursue follow-on work individually. This approach will be more efficient and affordable than the owner trying to deal with the advisers one by one. And the advisers themselves may see value in proceeding this way.
Many family business issues require no adviser involvement at all, from buying and selling stock within the bounds of a shareholder agreement, to hiring or not hiring grandchildren for summer jobs. Other issues, such as creating an employment agreement for a family member, or teaching junior members how to interpret financial statements, require only one adviser from one discipline. And even when multiple advisers are needed, a team is not always necessary. Business planning, purchase agreements between generations, and shareholder exit strategies are tasks that can be effectively addressed by different advisers applying their knowledge separately, communicating with one another as needed.
How do you decide if a situation warrants an adviser team? Each situation is unique, and there are many considerations arising from the different disciplines, business structures, and individuals that might be assembled. An outside board of directors, if it exists, might have a useful perspective. One approach is to take your team of advisers to dinner and ask them directly, “Is my situation an adviser-team situation?” Bring them into the debate. Ask, “Who should be on the team, and how would you proceed?”
Another approach is to send them the equivalent of a “request for proposal,” which specifies the integrative issue at hand, and asks them to define what assortment of people can best solve it. Alternatively, you can invite your advisers to a planning session, to create a blueprint for solving an issue you know requires an integrative approach; it will soon become evident how a team can best proceed.
If a team is needed, who are the players? Many owners will begin with their financial and legal advisers. These people are usually needed. The real question is, who else? The other choices should be based, in part, on whose business judgment you trust and respect. If the issue is succession, for example, some owners will view their banker, insurer, and management consultant as good additions. Others would no more include these professionals than they would an IRS agent.
With the development of the family business consulting field, more and more experienced advisers who tend to view family and business issues as a whole are available as potential team members. They can bring to the team a broad perspective on long-range planning for succession and continuity. They can also be helpful in devising a set of smart steps for reaching solutions that are not just tax-driven or stock-driven, which is good since these are only some of the considerations. And the solution will actively involve all the principal family members, which will minimize possible animosity.
Ultimately, the family business owner must decide who will be on an adviser team. Let the issue at hand dictate the mix of experts. Again, consult the board for suggestions. The object is to assemble the minimum number of people, yet enough to cover all the expertise needed. Keeping the group small will be more cost-effective, since too much professional diversity will just slow down the process.
Establishing priorities
Once a team is assembled, your task is to find ways to make its members work well together. This can be a challenge. Research into effective consultant teams, and my own experience, indicate that the business owner who wants to create a powerful and cost-effective team has to set goals early, choose a leader, and create tools for coordination and communication. Let me describe each of these and show they apply to succession at a fictitious company, Parmatier Metal Fabricating Co.
1. Set goals early, then back off a little while maintaining accountability.
Research on cross-functional teams suggests that appropriate supervision by the client is required for productive advisory-team results. The task for advisers on a team is to fit their different perspectives together in ways that further your company’s priorities. For that, they need—and want—guidance. This can be achieved, initially, by setting clear goals or priorities for the team. Once that is done, the owner has to stay involved, though less directly, to answer the many questions that will arise along the way.
As an example, consider the approach of George Parmatier of Parmatier Metal Fabricating in Chicago. George had started the company when he was 35, and its revenues had grown in 20 years to $80 million. Two of his three adult children had made their careers in the business, and one was close to wanting more leadership responsibility. In addition to family relationships, George worried about how his investment strategy would affect succession. He had put everything into the business to keep it debt-free. Now management wanted a huge capital investment. How was he going to get his money out, be fair to his children inside and outside the business, and leave the leadership and capital the company needed for competitive positioning?
George had met to discuss succession one-on-one with his CPA and tax adviser, his corporate attorney, and a family business management consultant. One adviser focused on using debt as a solution, another took a tax-savings perspective, a third presented governance solutions that compromised capital concerns. The answers were too disjointed to solve the complex problem, and the process was looking too inefficient for George. So he brought them together as a team.
The format they planned consisted of a few early meetings, which would establish the ground rules for how the team could assist George, how it would have access to others in his family and the company, and how it could achieve George’s vision for succession. It was expected that George would be highly involved early, then have less involvement as the advisers followed up on decisions, sometimes independently (such as drafting specific documents). It was also expected that, depending upon the state of succession planning and implementation, one adviser would be more active than others at any given time, but that they would meet periodically to keep everyone up to date, and review their progress and any change in direction. The team members also convinced George to get the family together to establish priorities for the team’s work, which would help the advisers focus on goals instead of their potential differences.
2. Be the leader, yet also appoint a lead adviser.
If you assemble a group of advisers, it will never occur to them to pick a leader. In the worst case, each will try to establish or maintain his or her own position as your most favored adviser. A lead adviser with the right skills is needed. The primary responsibility of the lead adviser is to maintain the client’s position as the real leader. That is, his or her primary task will be to maintain a relationship with you so that appropriate direction can be provided to the team at all times. One characteristic is therefore vital—an ability to manage communications between the team and the owners. And since your clarity on the issue will sharpen as progress is made, the lead adviser must be able to stay abreast of shifts in goals and priorities. Competent team members and teamwork are important, but it is the leader who will have the biggest impact on the quality of the solution.
For George Parmatier, it would seem natural to pick as team leader his accountant, the adviser who has the longest relationship with George’s business and family. An alternative, logical choice would be his family business consultant, the adviser who has the greatest understanding of the complexities associated with family businesses. However, neither of these choices guarantees what is most important in the role of the leader: an ability to maintain a conduit between the advisory team and the family business.
In the end, George chose Barbara, his attorney, because he felt she could most effectively translate the various points of view for him. George felt his accountant is sometimes a bit vague; and he wasn’t sure the family business consultant would spend enough time with him day in and out. Barbara would stay focused on what the family wants, and work harder to keep their interests in the forefront. She was also a capable integrator.
3. Devise means of coordination and communication.
No team will be effective without a few basic working tools. The most important tools are those that help team members communicate and coordinate work, especially when they are not in the same room at the same time. Obviously, advisers will be working outside the team more than when they are together. Just as a medical team uses a chart to document and communicate treatments and progress of a patient among doctors, nurses, and staff members who are seldom together, an advisory team needs handy coordination mechanisms.
It is often most effective to let the team decide on its own procedures for coordination and communication, since the individuals will feel more comfortable with and willing to accept methods they have devised themselves. George’s role was to make sure it got done. His team agreed on two methods. First, at the conclusion of each meeting, the attorney would draft a memo with decisions and action plans that would be distributed to the advisers and George. Second, electronic mail among the advisers would serve as their “chart.” The running head, which was preserved in each e-mail message, contained George’s succession goals. Whenever a member of the team had contact regarding succession with George, his family, Parmatier executives, or another adviser, he or she would document it in an e-mail and send it to each adviser, as well as George.
After the early meetings, George no longer had to closely supervise the work of each adviser. The memos and e-mail system were effective in fostering communication and coordination, and aided in accountability, since everyone knew who was working on what and what progress was being made. George felt comfortable that if he stayed abreast of what was happening in this way, the team would develop solutions acceptable to him, his family, and the rest of the organization. Whenever he wanted, he could send out his own e-mails with commentary, or halt activity he was unsure of until the next meeting.
From his experience, George learned several lessons about advisory teams. First, use them when an issue requires a solution that is so cross-functional that no one adviser can solve it. Second, select the right person to lead the team. Third, insist on a specific coordination and communication mechanism, since the team members have little experience in how to work productively together. At one point, George did not see updates on the e-mail system for three weeks, even though he knew an estate-plan flow chart had been drafted and circulated. George sensed his advisers were becoming lax in using a tool they had agreed upon. When he checked, he found their different e-mail programs made the method cumbersome. But he insisted the tool be used. The group came up with a new message-updating procedure that was easy for all to use. Regular e-mail communication resumed immediately.
Most business owners have the skills to manage the use of work teams in their businesses. You can apply these same skills to managing advisory teams. An advisory team may be staffed with cats, but they are cats who want you to manage them, and who can serve as well when they walk together as when they prance alone.
Stephen L. McClure is a family business consultant at the Family Business Resource Network in South Bend, IN.
Keys to adviser teams
•Must have a truly integrative problem to solve.
•Must have specific goals.
•Must have a leader who can keep the group focused on client goals, and communicate well with the owner, his family, executives, and other advisers.
•Must devise processes for coordination and communications.
Yes, advisers do want to work together
Adviser teams have not been widely used in family businesses. But a growing body of research into teams in other areas of business—from cross-functional work teams in industry to teams of consultants who advise nonprofit corporations—suggests that family businesses can benefit greatly from the use of adviser teams for certain situations.
Studies by Deborah Ancona at the Massachusetts Institute of Technology, as well as a comprehensive review of studies about many cross-functional work teams by Susan Cohen and Diane Bailey at the University of Southern California, indicate that if properly managed, professionals can achieve great results a team. For example, cross-functional work teams that include engineers, accountants, operations managers, and salespeople—professionals with accountability to individual departments yet an allegiance to the larger company—have proven very effective in convening for a short time, accomplishing a goal, and dissolving back to their specialties.
Indeed, many advisers seem to want to work together: When members of the Family Firm Institute, an association of advisers and academics from multiple disciplines, were asked in 1998 what they could do to serve their clients better, two of the top 10 activities they named involved collaboration among advisers. The institute has since begun to study what can be done to promote collaborative work among advisers.
— S.M.