Seeking external advice: a matter of trust

Alan Reddrop & Paul Mabarrack

‘Haven’t you [a consultant] ever been out there on the road trying to get in to see a business and just been shut out and not known why? The answer is: they’re a family business – they solve all their own problems, they don’t use people like you’

Craig E Aronoff, co-founder and principal of The Family Business Consulting Group (Astrachan, 1996, p 518)

Survey of family business CEOs

o the size, generation of the business,o recognition as a family business, o intent to pass on to the next generation, o awareness of family business issues (defined), o whether external advice had been sought, o the type of adviser selected and reasons for the choice,o the perceived value of the adviceo and whether it had been acted upon,o what had deterred those not seeking advice from doing so.

Issues of which family business aware

Issue %

Need to plan for succession 55

Mismatch between family and business goals 39Conflict between family members affecting the business 38Governance: company board, family business council 33Recruitment and reward of family members in the business 31Need to finance ownership without relinquishing control 21Reconciling shareholders’ demand for liquidity and the needs of the business for investment 19

‘None that I am aware of in my business’ 14

Advisers Those seeking advice from named source, %

Accountant 81Business ‘peer’ 41Solicitor 41Family business adviser 24Bank 18Friend 14Family member not in the business 11

*multiple selections were invited*multiple selections were invited*multiple selections were invited*multiple selections were invited****

Most frequently used sources of advice

Percentage citing choice

Have known a long time 44They are trustworthy 44Recommended by a colleague in business 14Recommended by business associate 9Recommended by BEC or RDB 9Recommended by FBA 6

*

*multiple selections were invited

Reasons for choice(s) of sources of advice*

Reasons why * % citing the reason

‘Professional advice is too costly’ 19

‘Unaware of relevant advice’ 10

‘We do things our own way’ 8

‘These matters are of too private a nature’ 7

‘I like to keep my own counsel’ 6

‘They would not understand our business’ 4

*multiple selections were invited

What deterred respondents from seeking advice?

‘The advice was received was valuable’ Percent

Strongly agree 26Agree 51

Neither agree or disagree 21

Disagree 1

Value of advice received

percent

totally 27

in part 70

not at all 3

Adoption of ‘valuable’ advice

‘One of the incumbent co-directors will not seek advice. They believe it is no-one’s business but their own and that they know best. They are happy for the successors to pick up the pieces after they die. Successors know this lack of direction will make for painful/costly succession’.

A respondent’s reason why advice was not adopted

o family business people predominantly do recognise their businesses as such

o they are aware of family business issues arisingo they do seek advice, but not necessarily from paid

professionalso they usually value and act on ito trust permeates their actions.

Themes arising from the survey

Today’s themes

o indispensability of external adviceo peer adviceo trust

o the trusted accountanto adviser skills formationo the impermeable CEOo a Council of Elders

The Trust Equation

T = C + R + I S

where

T = TrustworthinessC = CredibilityR = ReliabilityI = IntimacyS = Self-orientation

Maister, Green & Galford, the Trusted Advisor, Free Press, 2004