As Family Business Advisors, Can We Separate the Myths from Realities?

 

If it’s true that family businesses are influenced by a variety of myths, how does this impact our ability to ensure that our clients can thrive in a competitive global landscape?

While the global marketplace has created countless opportunities for family businesses to expand, these new operating conditions may have also created an environment where certain preconceptions can hold back business performance.

It could be that specific assumptions are only true for a particular generation or business environment or are grounded in cultural beliefs. Whatever the cause, these beliefs could hinder a company looking to remain competitive internationally.

And if it is a reality that the dynamics within a family business play an important role in its development, it is equally important for companies, and their professional advisers, to recognise the myths or prejudices that could similarly impact their ability to advance and prosper.

Do family businesses adequately plan for the future?

Perhaps one of the biggest debates about family businesses is whether or not they adequately plan for the future. Are these companies adept at setting themselves up for new growth?

According to the preliminary results from the global ‘BDO Discovery Questionnaire” into the state of family business planning, there is reason to believe that, on the whole, their focus on the future is misguided. Based on a survey of 200 families, the first phase of BDO’s research indicates that while many may believe they are looking ahead and implementing long-term planning methods they are, in reality, making decisions based more on perceptions than facts. The common denominator among participating families is a lack of awareness and information around what constitutes best practices – both for ensuring that their operation remains competitive in the marketplace and for preserving, protecting and nurturing their equity in the business.

As advisers to these family firms, we need to take leadership in ensuring family firms are more open in their communication in order to enhance their decision-making ability. We need to help them remove the guesswork and replace it with a proactive approach to addressing the lack of awareness and uncertainty highlighted in the first phase of the survey.

The research also provided some insight on the validity of three additional legends.

1. Are respondents family focused or business minded?

There is a perception that family businesses promote a focus on the family unit, rather than embodying the professional stance that other organisations aim for. This perception was in fact borne out by our research, which found that family-owned businesses were more optimistic in questions relating to the family than they were with regard to achieving best practices around shareholder and corporate matters.

Specifically, respondents ranked themselves higher for factors like alignment of family philosophy and familial ties. However, levels of confidence around business planning, compensation, contingency, future uncertainty, communication, decision-making and succession planning were all ranked somewhat lower. This would support, for example, the claim that family companies are more likely to promote and compensate based on relationships rather than merit and offer an open-door employment policy for family members.

2. Does a gender bias exist in family firms?

Our research also took a quantitative look at whether it is a myth or reality that gender still plays a major part in family businesses – is male leadership still more prevalent in certain cultures?

Recent studies would suggest there has been a significant shift globally towards merit-based candidate selection, with greater consideration being given to which member of the family has the greatest passion for a role.

Preliminary findings from the BDO study would suggest that the majority of families uphold the belief that female stakeholders are seeing greater involvement and information sharing compared to historic averages. From a position where mothers and daughters were only informed of business strategies on a need-to-know basis, more females are now actively included in the discussion and planning of the family business.

3. The “evil In-laws”

In exploring the legend that in-laws are ‘not family’, current data would suggest that this is indeed yesterday’s myth. Contrary to the notion that in-laws are a source of tension, our research found that the majority of family businesses are more collaborative today, actively looking to include stakeholders like in-laws when gathering insight and more open to including in-laws in company management.

This level of collaboration continued even where in-laws weren’t shareholders or playing a direct role in the company.

Are current realities tomorrow’s myths?

Our research would suggest that a number of the current realities for family businesses globally will become obsolete in coming years. We expect the largest development here will be the decline in knowledge transfer between generations. Thanks to the growth of digital information, intergenerational learning will likely become less relevant for new business leaders.

Culture change is part of the reason for this shifting reality — we see an increasing number of family businesses in East Asia being influenced by Western norms, especially around gender biases. Over the next few years, this shift will spread further, influencing business strategies and management structures more broadly. We also expect other regions like South America will meet these expectations by experiencing a change to family business practices.

This transformation will also affect the cultural foundations that underpin family dynamics. Traditional concepts of relationships and marriage are being redefined and in turn affecting the way family businesses operate.

Overcoming the myths of family business planning

While misperceptions clearly present a serious challenge for businesses, it is extremely important for advisers to family firms to consider how they might adjust their role to help dispel common myths so they do not negatively impact an enterprise’s performance. We also need to ensure that myths aren’t driving our own approach to business improvement.

The first strategy is to allow all stakeholders, whether or not directly involved in the day-to-day operation of the business, to play a role in setting the direction for the family business. Without input, there is no buy-in. Without commitment, there is little accountability.

Secondly, it’s important to listen to our clients. Advisory teams need to have access to the right data in order to build a clear and unbiased understanding of a company’s performance. Every family business will be influenced by different myths, thanks to a variety of cultural and situational factors. The challenge is for companies and their advisers to recognize these biases, acknowledge their reality, and develop a plan to navigate the issues.

About the contributors

Daphne McGuffin BDO Canada	Susan Rix BDO Australia	Maybeth Shaw BDO Northern Ireland	Ed van de Vijver BDO Netherlands
Authored by members of the BDO Global Family Business team. The BDO Global Family Business (BDO GFB) team comprises representatives of member firms from the BDO global network. Daphne McGuffin can be reached at [email protected].