Role of the Board of Advisors in Family Businesses

Hello everyone. Welcome to the new episode of family firm in focus, where we discuss with advisors, with family businesses, different aspects of family businesses, what could be the learning aspects and main vision behind this platform is to facilitate family businesses and advisors those who are facilitating family business. So today, my guest is very senior advisor, my mentor. He is an author as well. He is host as well. And most of the times he is also being serving as a guest as well, like in our case today, and he is continuously contributing to his writing. Along with that, he’s a faculty member of FFI, the leading Institute of Family Business Advisors and FE, which is a family enterprise exchange Canada. Along with that, he is a coach as well, and most importantly, he is coming from second generation family business. So I would like to welcome Steve. Warm. Welcome to you, Steve, thanks a lot for your time.

[1:02] Thank you. I’m honored to be here with you, and look forward to our discussion.

[1:06] Great, wonderful. So, Steve, first question coming from second generation family business background yourself, how does it contribute to your advisory practices?

[1:16] Yeah, that’s a really good question, because I know a lot of people who do this kind of work who were not lucky enough to have grown up in a family where they were part of this, and it’s hard for me to, you know, hold that against them. So some people manage to do this work really well, despite the fact that they have but I would say I’ve never done the numbers, but probably half or so of all the advisors that I know that do this kind of work with families have some kind of lived experience, either they were actually working in their family’s business, or there was one earlier on of their ancestors. There’s often people are attracted to this work because something went wrong in the transition of a family business somewhere in their family tree, and they’re curious about that, like, Oh, I got into this because my mother got, you know, written out of the family business that her brother ended up taking over. And so people come to this work from a number of different backgrounds, some of them, it’s just some professional training. I was trained in the business circle stuff to learn to take over my dad’s business, and then we sold that when I was still in my 20s. And it was only much later that I discovered this world of serving families with these transition challenges, that I realized that my lived experience of what I grew up with, plus I married into a business family as well. And I saw how my in laws handled the transition of the business, and they had a liquidity event as well, and how they handled that, and learned from a couple of different examples. And it always serves me well, and I have to make sure that I never commit the error of assuming that, well, my family was like this. So therefore all families are like this, because there’s no family that’s like mine, and there’s no two families that are the same. So every time people like me walk into a family situation, we’re always starting with a clean slate and trying to figure out who all the players are and how they relate to each other, so that we can help them with the challenges of transitioning a business from one generation to the next, even though

[2:58] we are coming from second generation or third generation planning business and serving as an advisor. And capacity of advisor, we cannot say that every experience is going to be same. So we have to be very clearly focused on that. Keep ourselves open how to advise. Moving on, we have seen like including myself, and when we go through various conferences and workshops, there is a question we highlighted that those who are founders, those who are entrepreneurs themselves. They have taken up the risk. They know the business well. They know the fundamentals behind the sector in which they are working. Then they come up with a question. You’re so senior, we have so much experience, why should we take on board any advisor who is coming out of the family, and what kind of help you get out of

[3:37] it? What do you think about it?

[3:39] So you’re bringing me back to my father, and the way he was with respect to advisors, and he joined a group called Cafe back in the 80s, the Canadian Association of family enterprises. And they he said, you know, we go to these meetings and people say things that these experts come now, these experts. I didn’t realize at the time that I was going to be one of these experts someday, but they said stuff like, you shouldn’t hire your children right out of school. You should get them to go and work somewhere else first, but, but we’re not going to do that. So he didn’t listen to those advisors. Then he heard them say you should have family meetings and you should have an outside person come and facilitate those family meetings. Well, he called a family meeting, decided he didn’t need the part about having an outsider facilitate, but we had a family 1985 the next family meeting didn’t happen till 2006 so if you’re doing the math, that’s 21 years later. That is not the recommended interval between family meetings. And we only had that other one because he was diagnosed with cancer and felt like, oh boy, we have to have a family meeting. So advisors that come from outside, I understand the reluctance of the All Knowing entrepreneur who founded the business, who knows the business. What I suggest is that those founders, yes, they are experts in the business. But this is more about I intervene more with the family and how the family relates to the business. And another mistake they often make is, okay, well, we’ll bring someone in to deal with us, but only with the people who are working in the business. So if there are three children and only one is in the business, the founder will say, No, just deal with the ones in the business. And it’s all the stuff of the family members that are not part of the business, where often there are problems. And so my attitude is, when I deal with a family, I deal with the whole family, whether or not they are employees of the business, they are stakeholders, they may be future owners. They need to be involved in the discussions about the business.

[5:11] And you have contributed a lot in term on professionalizing.

[5:16] I was going through one of your resource which has a video as well, and as a written article as well. So your video explains there are five different ways to professional professionalize spammy business, and at the third point, I stopped, and I was going through that terminology says upgrade your advisors. It’s not that upgrading your employees or your board of directors, it’s upgrade your advisors. Can you please shed some light on this point?

[5:36] Yeah, so what happens a lot is that an entrepreneur will start a business, and they’ll get they’ll have an accountant, they’ll have a lawyer, they’ll have someone that helps them get started when they have a very small business, but they become friends with these advisors. And then fast forward 10 or 20 years, the business sometimes has grown enormously, and the needs of the business of what that business needs now, when it started with three employees, and now it’s 300 employees, the challenges that that business faces are usually a lot different, and oftentimes that accountant or lawyer or whoever was dealing with smaller businesses is not equipped with the education, with the connections with a large enough firm to deliver all the services that the family needs. So sometimes it’s really hard, because they become friends with these people, and it’s not about, well, you know, I have to fire you buddy. It’s like, like, if you need a lawyer for more specialized things, ideally, you should be able to reach out and find people that could advise you at the level that you need it, based on where the business has grown. Because too often, what happens is these key advisors that become dad’s buddy, and now he just relies on those same people he’s been relying on, and there’s no fresh thinking. And they don’t have, they don’t necessarily have what it takes to advise the family and the business to get to the next level. And so that could sometimes hold the business back.

[6:47] For example, visualization or anyone who artificial intelligence system, you need to have upgraded lawyers or upgraded people, those who can learn about the intellectual property, they can protect your intellectual asset as well. So this kind of example could be done, but again, referring to the same video or the article as well, it also highlights the importance of creating board of advisors. That means you are asking family businesses to have different people coming up from different disciplines, right? And creating a whole for advising. How does it work for families?

[7:16] Well, so what often happens is, for what a fan when a fan, when a business grows to a certain size, they will, they will talk, start talking about having a board of directors, so a fiduciary board of directors that have full responsibility to guide the company most smaller family businesses as they grow, that leaping to a board of directors with fiduciary responsibility is kind of too big of a leap for most of them to take. So what often happens is people like me will say, why don’t you start with the board of advisors? Those advisors are people from outside the business. They come to meetings, quarterly meetings, usually they get paid for coming. They’re not just dad’s golf buddy and his accountant from, you know, 30 years ago. It’s you actually go and find people who have experience in in the in a related industry, or people who have a business of a similar size or stage, and you can bring people around to have other people besides what typically happens is it’s dad and it’s the two, the two next gens, and they are trying to decide things as a small group. And often there is tension between the generations of a family, and to have outside people with an independent perspective is a very good thing. So for example, when I came back to my family business with my MBA, my dad was, well, I’m not going to have a board of directors, but all of a sudden, as he moved up to Chairman and hired an outside president, the idea of having a board of advisors and having other people supervising me as I was coming into a role to eventually take over that was actually appealing to him, because he would still be in control, but he would have other voices at the table to help to mediate some discussions about the future of the business, but hopefully good qualified people that actually have something to add to help the business. Wonderful.

[8:49] So when we look at this, and you have written that this is one of the single most, I would say biggest step to professionalize Is there any reluctance in going ahead with this step like it does belong to founders.

[9:02] There there’s always reluctance. I think what one way to overcome that is to do it in small steps. So if an ideal board of advisors would have, you know, four or five outside advisors, you don’t necessarily want to start with trying to assemble four or five. I would, I would suggest starting with two. I wouldn’t want one, because then that’s just it doesn’t feel the same. But I would, if I were working with a family that said, let’s start this, I would say, let’s identify two people, and let’s sort of beta test what what meetings would look like and what an agenda would look like, to get everyone used to the fact of what’s going on. And then, assuming that goes well, start to add, okay, so what other profile of what type of a person would we also want to add, and where can we find such people? So that, let’s say that full board of advisors with four or five outsiders that might be in place maybe two or three years later. That’s how I would probably recommend someone do it. And if you start them, if you if you choose the first couple, well, that’s so things, things go in a way that the founder likes, the chances are that continuing will be something that happens. If it doesn’t go well, then they’re probably gonna kibosh the whole thing.

[10:06] Then there could be more reluctance coming out of India.

[10:10] Yes, it’s the same thing with with when, you know, sometimes I meet with a family and they tell me with their story, and I say, you know, you should, you’re gonna have to have a family meeting to discuss this. And just those two words, family meetings sometimes scare them, because, you know, they had a family meeting two years ago, five years ago, 10 years ago, and something didn’t go well, and now they’ve been scared of even trying to have a family meeting. The same thing could happen with having an advisory board. Oh, we tried that. It didn’t work. We’re not going to do that. Well, perhaps you tried it in a way that was a little bit clumsy and didn’t work out. And maybe we could, you know, plan it a little bit better and do it in a way that has a higher likelihood of success?

[10:42] Yeah, coming from the same question, when these board of advisors are hired, right? So they are not taken on board as the board of director, independent board of directors just to attend a meeting and you will debate for meeting, they will be hired as an employee. Is it correct?

[10:57] No, it’s not. It’s not an employee. It’s a professional relationship in the same way that you would, you would hire an accountant or a lawyer or someone else, but, but it’s important that it be paid. So often people think, well, I’ll just get some of my buddies come. They’ll do it as a favor. And when it’s not paid, it’s not taken seriously enough, and it doesn’t have the gravitas that you want this board of advisors to happen. Ultimately, you want this board of advisors to be a group of people that all the key employees in the company are respecting and listening to and wanting to get their input on so I always suggest to aim a little bit higher in who you’re trying to get and be willing to pay the people a quarterly amount for coming to the meetings. But they’re not employees, but they’re there. They’re paid. They need to be paid to show up so that it is taken seriously by them and by everyone else around them. Because if you just have, oh, here’s some volunteers. Some volunteers, some of dad’s friends are coming, and they’re going to sit around one evening and talk about the business. It doesn’t have what it needs to be taken seriously, and it’s an important enough step that it makes sense to do it that way and do it right, or not do it

[11:53] at all. When you make it a part of the compensation,

[11:56] yes, you’re going to get out of it what you put into it, and if you choose not to put enough into it. You’re not going to get enough out

[12:04] of it. You have mentored numerous advices, including myself as well. How would you advise that advisors should upgrade themselves? What is a key role of advisors, considering the fact that discussing the role of advisors and family? So how would they

[12:19] should you upgrade themselves? So I’ve had this question a lot over the years, and I don’t like to be too directive of telling people you must do this or you should do that, but I can tell you what I did. And so I did this program, FBA family enterprise advisor in 2013 and that’s where I discovered this world of advising families on their business and wealth transitions. And the first thing I said was, oh, okay, this is big. I think I want to do this, but I don’t know that I have the skills to do this, because I was trained. I have an MBA, I have a CFA, chartered financial analyst. I have all the things from the business circle. But now I was moving into what I call a family circle, and I wasn’t convinced that I was well equipped enough for that. So I remember saying on the first day of that family enterprise advisor program, well, I have to do some more. Going to have to do some more training and, you know, conflict resolution skills. And then somebody said yes, and coaching. And so that got me down the road of taking coaching courses. And that was the biggest game changer for me, because coaching, the biggest thing about coaching is learning how to listen without judgment and and that is so important, the listening skills that you need so many advisors come from the technical side, as accountants or lawyers and what I call STEM and now they’re moving over into an area where it’s more liberal arts. It’s more about the way you are, the way you communicate with people, and how you listen to them. And do you have empathy, and are you able to do have the emotional intelligence to sit in a room of family members, which I’m often doing, where they’re all family members, and I’m the only outsider is not part of the family, and learning to be able to sit in that room and add value and facilitate a conversation is not they don’t teach you that in accounting school or banker school, right? So there are things I did, coaching courses, facilitation courses. I started learning about family systems theory. I really immersed myself, because I want to do this job well, and you never stop learning. And the best practice, though, is to be in there in the room with families, but you have to show up in the right way. If you come in to a family meeting with oh, I’m going to tell them what to do, it doesn’t always work so well. It’s more about being with the family and helping them figure their own stuff out, and making sure that they listen to all the voices in the room, which is not the same skill set as what many people train in that get them attracted to this work so that shift into the more social part of it, the more relationships, the emotional part. It takes some work. Some people come at it very easily, and others it’s a lot more difficult to learn. But what I did learn about myself, and I only realized it a few years ago, my dad was a great entrepreneur, and he could not do what I do, because His attitude was he knew what to do, and he’d tell you what to do, and that worked for him in his business. But what works for me to be able to sit with a family and listen to people. Listen to people are all the traits I actually got from my mother and my mother’s side of the family, to be able to sit with people and listen to them and respect them and try and draw them out and and work on coming to solutions together. So I was lucky that I had a mother that I inherited some of this from, and allows me to do this.

[14:58] Well, I am imagining that probably sitting in a room and an outsider adviser, like you mentioned yourself. So it must be a challenge, challenging task that everyone has to speak, and everyone is expecting that the advisor, the person who is actually moderating the whole session and the meeting or something, they’ll listen, right? So what kind of situation

[15:17] I’ve been in? Some really interesting situations where people start screaming at each other, and people start swearing at each other and and sometimes it’s really challenging to not overreact. So I have an expression that I like is it’s, it’s counterintuitive, but it’s, don’t just, don’t just do something sit there, which is the opposite of what you normally hear, and sometimes the tendency to overreact, but what? But for me, and I actually had this happen in a meeting just a few weeks ago, where, it got, it got heated between a rising gem and a parent, and it needed to it needed to emerge. It needed to be said. And so I had to let it happen. But then the trick is, how do you now put the pieces back together and get the meeting back on the rails and still continue to do what you were there to do? But, but being it’s not and some people are very uncomfortable. I’ve heard stories about people who who walk into a family, and they’re from a culture where, you know, people yell at each other all the time, and if that advisor is not comfortable with that, they might immediately think, Oh, my God, this is the end of the world. But really, that’s just how this family deals with each other. So, so understanding what’s normal for the family takes a little while, but you need to be prepared for things that you know, I always say I walk into a room I don’t know what’s going to happen, but I trust myself. And some people describe it as a skill that’s like surfing, like I’m confident on the surfboard. I don’t know what wave is coming, but I know I have confidence in myself to be able to navigate now, it’s not always perfect, and sometimes a really big wave comes and knocks you off the surfboard, and then you get back on, and hopefully you can still keep writing it, but it’s, it’s really interesting work, and it’s not for everybody. So I advise people who take the FA program, I’m a project team advisor. They they go, they get put in a team, all the people in the cohort, and they have to go find a family and do a project. So a couple of years ago, I advise the team, and when the when the project was over, one of the people on the team said, I’m so glad I did this. I’m never going to do another family meeting again. I learned that this is not for me. And I said, bravo, congratulations, because I much prefer the people who recognize I don’t want to do this compared to some people say, Oh, this is easy. I’m going to go and I’m going to start to do this. And if you’re really not well trained, you can actually go into a family and and not do damage, but but really not help them. And so I hesitate to get people to say, yeah, just bring anyone in to come and facilitate your family meeting, find out if the person has experience and

[17:25] knows what they’re doing. First. Steve, getting to my culture background, where I come from, we cannot say anything in front of our elders, and proceeding myself conducting this kind of meeting. And after the meeting, the younger generation comes to me and say that, sir, it was not possible to say something against my elders, but I have different point of view. How will you deal with such situation

[17:49] that is a challenge. And I was on a webinar once in I believe it was the Philippines, and what happened was and the person who invited me said, there are families out there and where the parents were, two generations are watching the webinar together, but the way they dealt with questions was you could text your questions into the moderator, and then the moderator would ask the question of me and the other guest. And it’s because it’s I understand, yeah, it’s really hard. It’s an extra challenge. It really is. And all I can say is, when I started this work, I really thought that the bulk of the work would happen when I’m in the room with the whole family. And what I realized after doing this for over a decade, that’s part of the work. It’s an important part. But the one on ones that I do with each family member in between those meetings, or the extra meetings that I do with the parents to help them hear some of the messages that I’m hearing from their rising Gen, but not saying it with the rising Gen in the room, or the meetings that I have with just the rising Gen without the parents, so they can feel open with me. Then my role is sharing information in a way that’s neutral and in a way people can hear each other. And sometimes I’m the one delivering part of the message, because people don’t feel they have a voice, but that I always try to get the people to voice things themselves. And I also have to be sensitive to the culture where that is a real, huge burden to, you know, come out and say something that appears to be against the parents. So there’s so much work that happens between the family meetings, and that’s where a lot of the progress happens. And it’s having, it’s getting both generations to trust me enough to share with me and to listen to me

[19:22] learning experience. Thanks for that. Getting to the conclusion, Steve, I was going through your website, and in the last is a statement, stop working in your family business and start working on your business plan. So that is, that is the

[19:36] secondary title of my first book, shift your family business. And I thought I was, I thought I was, I thought I was being clever, and I still think I am, because it really highlights two things. One of them is there’s this whole thing about, you know, working in people that are so busy working in their business that they’re not working on it, and so often that’s founders, they’re so busy playing a key role, and it’s only when they realize they need to leave those roles to people so they can get out and work on the business, rather than doing the nuts and bolts of what the business is doing. So that’s, that’s a well known thing from books from decades ago, where they talked about working in the business, working on the business. But then the other thing that really struck me is, you know, just the difference between, is it a family business, where the noun is the business and the business happens to be owned by the family, or are we talking about the business family? Are we talking about a family and the important part of the family? And so what I wanted to encourage people to do, what I still do, is is stop thinking about the business first, think about the family first. There comes a point in time, often in the founder’s life, where the business has grown to a certain size. And now I think that some of those founders should shift their focus and stop thinking about the business and start thinking more about the family. So I built this enterprise. How will I make sure it transitions within my family? And so to focus on and start having family meetings and involving all of the family and just informing the family and talking about what can happen, what they want to happen with this business decades from now, when dad or mom and dad are no longer around, but to start to have those intergenerational conversations in the family and not just assume so and so this person is going to take over or this person is not interested. There’s so many things that get assumed when they’re not talked about, and that’s probably a bigger problem than than the problems that do get talked about. It’s the assumptions that each generation makes about the other generation, because they don’t have a forum in which they can come together and start talking about these things and learning about what everyone is hoping for.

[21:25] That’s the beginning of putting up the foundation, of writing a family constitution. Who has to do what, what kind of responsibilities can pass on, who is interested in what kind of compensation could be planning so many other things. Thanks, Steve. I always learn with sessions from you, and this was the first time you were going through the podcast as well. Again, thanks for your time. I know you are contributing a lot, and you can put your website in the link as well so that people could share more respect. Thanks, listeners and viewers for listening or episode, and you like to come up with more and more such episodes. If you want to listen to any specific topic or want to hear from us, just subscribe to our channel or write to us. Thanks a lot. Stay blessed. Thank you.