Introducing a Business Consultant to a Client Family

Mar 5, 2019 | Business Planning, IRS / Tax Guidance, Podcasts, T&E Administration

“Introducing a Business Consultant to a Client Family.” That’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is Lois Ann Stanton, an ACTEC Fellow, from Austin, Texas. Family businesses sometimes need a business consultant to guide them through the process. To discuss this topic, you will be hearing today from ACTEC Fellows Don Kozusko of Washington, DC and Andrew Stone of Chicago, Illinois. Welcome gentlemen.

Thank you.

Thank you.

Our topic today is introducing a family business consultant to a client family. And first, we want to tell everybody what we mean by consultant. And we are really focusing here on individuals who help on the soft side, the personal side- so not an investment banker, not a business operation specialist- really people who help on the human side of client relations, facilitating discussions, that type of thing. And broadly today we are going to talk about setting realistic expectations for choosing a consultant and making the introduction of the family, designing the scope of the relationship- which is of course important and we will talk about a couple client scenarios there- and, lastly, choosing a personality or practice style or educational background of the consultant.

So, before we dig into specifics, there are a couple of overarching takeaways we have for everybody today. And the first is that when a lawyer goes out and tries to find a consultant it is critical that the lawyer thinks hard about this and does a lot of preparation because if you choose wrong consultant or you do not properly define the scope of engagement, the client is not going to be happy and they may blame the consultant but they are sure to blame us as well. So, with that in mind, let us talk about setting expectations for the family and the consultant.

Hey Andrew, I spoke once with a very highly regarded business consultant who had 30 plus years of experience and I was told by that person that their batting average was below 500. And, as we talked about it and reflected on it, I realized that it was because the consultant had a very ambitious goal, it was probably to some extent imposed by the family. And what we realized instead was that the family expectations, they can be properly ambitious with the consultant, but between the lawyer and the family, we ought to think about a more realistic discussion, because, let me take an example: if a family is not working well together it is probably a result of long-standing habits that aren’t going to change overnight. You do not learn to change by being told that you should change. It’s like going to a person with low self-esteem and saying, “You ought to feel better about yourself.” So, in fact, the habits may not completely go away. I define success not as everybody going away happy, but instead is as people working together better than they otherwise would. So that’s what I mean by setting expectations and defining success in a more realistic way.

And you had an interesting comment here, you said, “The past is not just history, it affects how we react today to family members.” Can you elaborate on that?

Well, I was in a facilitation once, actually between two business partners, and every time one made a statement, the other person would react negatively because they didn’t listen to what was being said at that moment. They went ahead and interpreted it based on past history and it’s the old, there you go again and every statement was blown out of proportion and I think that’s even more true in families. And so that is what I mean by old habits aren’t going to go away, you have to manage around them.

Right, exactly. So, what about designing the scope of the relationship? We identified several different kinds of classic client engagements here. One would be managing a transition, i.e., business succession or moving from an operating business to a family office. Another would be the process of creating a family constitution, as it is sometimes called. And the last would be improving communications generally facilitating family meetings and so forth. You had a specific business succession example that you wanted to highlight.

Actually there are several, but one that comes to mind even since we last talked is we were called in on to sort of comment on the transition between an operating business into a family office and we had a multidisciplinary team because it involved investment questions, it involved legal questions, and it involved shall we say personality questions. Maybe a more common example is when a business passes to the next generation, there may be a need to divide it up in some way shape or form and I have seen that go well with a consultant, maybe even two consultants, but I have seen it go poorly when families think that they do not need help and they try and do it themselves. And in both cases the business may be divided up and in one case it is divided up reasonably and in the other case, it is divided up in a fight and a legacy of bitterness and so that is sort of a classic case where a consultant is helpful.

More recently, maybe 15 years ago, a new idea came in mind to deal with some of these succession questions before there was an actual succession and so the consultant started talking about a family constitution and I know we share similar views on that and I had actually…


Reservations well said.

We were just talking about what even the terminology is- whether we are talking about a family constitution or mission statement or value statement, we agreed that really the process is what is the most important. So who cares what the ultimate outcome is in terms of something on a piece of paper if that is- you have to remember that that is not the ultimate goal here, it’s really the process, right? And that is what the consultants are expert at, at helping with.

Right. I have seen people sort of debate for the better part of an afternoon as to what should go in the mission statement versus the vision statement and it kind of drove me nuts, especially because in a lot of these cases people just get words on the paper and put it in a drawer and they don’t change their process. That is why it is important to don’t think of the constitution as the result. You know it is like that old expression, it is the journey. Creating a plan is not the goal, it’s the planning process, which leads us to communication. I think even more recently, consultants have identified that if they can work on the family communication that would be the most important step. I was working with a philanthropic consultant and he said in his experience he spends half of his time, especially at the frontend, helping the family communicate and not really focusing on philanthropic goals. Or, to put it in another way, in the process of talking about philanthropic goals, he spends a lot of time on getting the family to communicate. I’ve seen this done in short bursts where people get illustrations and observations about how they are not communicating and I’ve seen it, as we know, in longer relationships and that’s again a definition problem. Are you prepared for a longer relationship or you want to sort of test run the consultant for a couple of meetings and just engage them to come in and talk about what they see as far as how the family communicates?

And that really brings us to our final topic which is choosing the personality or practice style or educational background of the consultant. So it is critical to have the right fit, right? To have the person who is going to get that family talking. How do you identify the right consultant for a family? What goes into that process?

It should be, as we indicated earlier, not just an afternoon discussion. It’s more than that, for example, a family that is completely disorganized probably would be better off starting with a lawyer who is actively engaged to help them organize. I do not mean they have to be functioning as a lawyer, but in my experience consultants who have a legal background tend to focus on organization. On the other side, the family maybe not in open conflict but serious friction and you have to decide- and some of this may be trial and error- you have to be willing to make a distinction between “do I want somebody as a consultant to come in and just observe and make sort of passive comments?” or “do I need somebody to come in and be more directive and sort of tell people that they are misbehaving?” I’ve actually had that case. We started with an academic that was hired from a distinguished university and was a serious business consultant, but that person’s style was completely out of sync with the family leader. The family leader was intuitive, the business consultant was enormously organized and systematic and it wasn’t working. We didn’t request that they resign, but they realized that it was not working so we brought in somebody. And this was two of us thinking who should it be and we brought in somebody who was very directive, not because they were going to tell the family leader what to do, but they were prepared to say and it was put diplomatically, but the point was, “until you people stop shouting at each other, nothing is going to get done and if you keep shouting, nothing will get done. Is that what you really want?” And was very blunt. So it is a different style.

So most of these consultants, some of them may be attorneys, some of them may be business people, but many of them are going to have a psychological academic background, right? And we, as lawyers, have a hard time I think getting into that mindset for a lawyer who is hiring their first consultants for a client conflict situation. What advice would you have to the lawyer in terms of trying to understand the psychological approach?

One thing you might do is ask whether the person has written any books. Most of them have. Secondly, in their interview, come up with a couple of hypotheticals that you have thought about ahead of time and ask them how they would approach that and I think very quickly you’ll see this distinction in a lot of situations between somebody who’s very directive and somebody who isn’t. Some consultants, for example, want to interview everybody in the family, some are willing to do that selectively. It doesn’t even have to be exactly your case, but if you gave somebody a simple hypothetical and asked them how they would approach it or ask them some cases they worked on. People are creatures of their clients. If they work with a lot of dominating business owners, they are prepared to deal with a strong personality. If you bring in somebody from a different environment, they can be crushed by the dominating business owner.

Great point. Well, I think that wraps up our discussion for today. Thanks, Don.

Thank you, Don and Andrew, for sharing your thoughts on using business consultants.

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