Survival of the Family Business

The strengths of a family business are also its weaknesses. If those weaknesses are managed well and turned into advantages, the business may survive and prosper - perhaps even to the second generation (a feat that is achieved by only 30 percent of family businesses).

Working in a family firm can have distinct advantages. Key members of the business may share strong bonds and values. Working in the firm may offer them a kind of personal fulfillment that they couldn’t find elsewhere.

The family patriarch and CEO may be much more likely to show concern and consideration than a CEO who shares no family ties. And business decisions are more likely to take personal and lifestyle considerations into account.

That’s assuming that the family is a positive and model family, of course. It assumes the business is run along the lines of The Brady Bunch and not The Addams Family.

However, the benefits of working in a family business are largely subjective, while business survival tends to depend more on objective factors. The market will make its judgment on a business with only passing concern for whether it provides a personally rewarding work environment.

The key to ensuring family business survival is to make sure that the subjective side of the business does not get in the way of objective side. One way to do this is to appoint an independent advisory board. Advisory boards in small firms typically function as a substitute board of directors.

Independent advisory boards, also called quasi-boards, are usually thought of in the context of big businesses. In fact, fewer than 20 percent of smaller firms have advisory boards, but they are worth considering. They may provide a source of industry-specific expertise that can supplement professional advice from other areas.

A SME might be able to attract advisory board members with useful expertise, perhaps relying on the networking ability and charm of the CEO.

An independent advisory board should consist of non-family members who have various kinds of relevant business expertise and who can offer objective advice on business strategy. The board can provide feedback on new business ideas and can provide counseling and consulting support on technical and industry issues.

Experts suggest that the advisory board consist of no more than a half dozen outsiders. As the board is advisory rather than official, accountants, bankers and attorneys can be very useful. A formally constituted board should not include these professionals, because of possible conflicts of interest.

It is also important to ensure accountants, bankers and attorneys on the advisory board are not paid a fee for their services, as this helps clarify the non-existence of liability for these professionals.

The advisory board might provide advice on the company’s strategic direction, new business development opportunities and initiatives, capital and budgetary issues, progress against financial targets, and requirements to upgrade technology or information systems.

It can offer a fresh perspective on the company structure. While family members may see each other principally as ‘father’, ‘aunt’ or ‘son’, the board can serve as a reminder that job roles have to be kept clear.

The advisory board can serve as an alarm system when personal and family issues threaten the viability of the company. It may politely remind the CEO, for example, that he is due to retire in five years, that plans for his succession are not finalized, and that the company could be exposed to litigation and tax losses in the event of his sudden departure or death.