Professionalizing the family: Putting in place financial advisory services that support family members in the context of their family business
Financial advisers are increasingly guiding business families to develop more formal decision-making structures, a concept known as “family governance.” istock.com
The owners of a family business are planning to step back from their active involvement in the company’s operations. One of the key decisions confronting them is which of their two children should become the next president of the company.
Their daughter has been in a senior leadership role for several years, while their son has managed one division. In the spirit of equal treatment and to avoid family conflict, they decide to make their children co-presidents. But is that fair, and is it the right decision for the future of the business?
This is one scenario that illustrates the types of issues that stakeholders in family businesses often struggle with, says Tina Di Vito, a partner and national leader of Family Office Services, part of the Private Enterprise practice at MNP – a national accounting, tax and business consulting firm in Canada.
“With a company that is not family-owned, the stakeholders are not connected in the same way, and they have less emotional attachment to decisions taken for the good of the business,” Ms. Di Vito says.
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... when we make business decisions, what do we need to consider when it comes to the family? The economic and social inter-dependence inherent in family-owned businesses can increase stress within the family. It’s difficult to take the business out of the family and the family out of the business. ”
“When you have a family business planning for succession or sale of their company, the founders grapple with complex and sensitive matters. They need to answer a key question – when we make business decisions, what do we need to consider when it comes to the family? The economic and social inter-dependence inherent in family-owned businesses can increase stress within the family. It’s difficult to take the business out of the family and the family out of the business.”
It can be challenging for family-owned businesses to determine on their own the best decisions to make on such matters as taxes, estate and succession planning, and legacy giving.
To respond to these unique circumstances, the financial advisory market is seeing a growth in services that are tailored to family businesses and the members of their families. MNP has developed this type of offering through its Family Office Services.
“One way to describe these services is ‘professionalizing’ the family,” says Ms. Di Vito. “Having an independent third party help navigate these decisions and the emotional pitfalls that often emerge can provide solutions that families themselves often struggle with.”
The MNP clients served by this specialized service include families with businesses that involve several generations and families that have created a substantial amount of wealth that is now being shared among a number of family members.
Family governance
The Family Office team offers several services designed to help family businesses navigate key decisions and milestones for both the family and the business. These include professional counsel to guide the creation of a system of “family governance.”
“With a company or another institution, governance defines the rules around who makes what decisions, and under what frameworks,” Ms. Di Vito explains. “Family governance serves a similar purpose, and it is increasingly recognized as a helpful model for multi-generational families, particularly when members have a stake in a family business.”
A governance structure sets out parameters, standards and expectations on how the family interacts with each other and how they interact with the business. “Having a formal structure will help the family communicate, make decisions and manage risk, especially during periods of uncertainty or major turning points,” she explains.
A key component of good governance is regular family meetings, she says. “The value of family meetings cannot be overstated. They have been shown to form one of the top three correlating factors in family-business success.”
For smaller businesses, the governance structure doesn’t need to be too elaborate, says Ms. Di Vito. “They don’t need a whole list of rules and policies, especially in the very early stages. I advise them to first incorporate family meetings if they haven’t already done so – where they discuss family values, what’s currently happening in the business and the vision for the future.”
When working with complex family businesses, MNP takes a three-circle approach to understanding needs and identifying risks for the business, the ownership team and the family. “This helps ensure all planning is aligned and that family dynamics are addressed and managed,” she says.
One key piece of advice offered by Ms. Di Vito is “don’t wait to start.”
Making the right decisions becomes all the more difficult “if you wait until a family is embroiled in an argument or until a family’s financial situation is dire,” she says.
“Through Family Office, we work for the family members to make sure that their personal goals are achieved in harmony with the goals of the family and the business.”
To view this report on The Globe's website, visit globeandmail.com
To view the full report as it appeared in The Globe's print edition: Family Business