Are you a “Family Enterprise” or a Family that owns an Enterprise?

Jeff Halpern, CPA, CA, TEP, FEA
Published: Jul 16, 2020

As a professional Family Enterprise Advisor (FEA), the first question I must ask business owners is, are you a Family Enterprise?

A family enterprise is much more than a family business. A family enterprise comprises the holistic dimensions of the family individuals, together with all aspects of the family wealth, consisting of the operating business, financial assets, real estate, heirloom assets (e.g. cottages, art, etc.), philanthropic interests, deferred assets like life insurance, and human/non-financial assets such as the intellectual, social, and spiritual values of the family.

Family enterprises have a unique family enterprise advantage, often called the “familiness advantage”. The familiness advantage comes from the integration of the family, its individual family members, and the business with one another. This combination of valuable attributes brings a competitive advantage that often cannot be copied, benefitting from the interfacing of all the resources together.

When several multi-generational enterprise families were interviewed to help explain why they were so successful in being able to maintain, grow and transition their enterprises for so many generations, the answer most frequently cited was that “we put the family enterprise above ourselves”. That means they successfully implemented a transition framework and techniques to enable decisions and actions within the wider family unit for the welfare and best interest of the family enterprise, rather than just for themselves.

The characteristics of a healthy family enterprise include strong open communication, an independent board of directors, transparency and high trust among all interested parties, a formal succession plan, strong leadership with performance measurement, clear boundaries, good corporate governance mechanisms, an alignment of purpose between individual and family, and above all shared values. One of the many techniques to foster open communication in the family is a family meeting. Effective family meetings typically have an independent moderator, and encompass four cornerstones consisting of: 1) family development, 2) family cohesion, 3) family enterprise, and 4) family fun.

If it were easy to be a successful multi-generational family enterprise, frankly, more families would have chosen this route, and fewer families would have sold off their valuable businesses.  But the truth is, it is not easy to be a successful family enterprise, as it requires collaboration, trust, hard work, and the help of skilled family enterprise advisors to guide the process. 

Family Enterprise Canada offers a specialist program leading to a designation for family enterprise advisors, called FEAs.  The FEA designation reflects the fact that the advisor has completed the very detailed year long course work, live family case work, and a written and an oral examination to prove their expertise.  FEAs are an ideal choice of advisor to assist business families in developing transition strategies to optimize the family enterprise advantage, and working out the issues that may be preventing.

Advisors to families who wish to have a successful family enterprise know there are three overlapping interested parties who must be considered in relation to family enterprise planning, including: 1) Family Members, 2) Owners, and 3) the Business (i.e. Management), referred to as the “Three-Circle Model”.  The Three-Circle Model was developed at the Harvard Business School by Renato Tagiuri and John Davisat. The three circles overlap, to produce a venn diagram, with seven different perspectives to consider when optimizing family enterprise planning.

Issues can arise in all three circles and their overlaps, including voice versus vote, vision/goals, rivalry, governance weaknesses, communication and relationship breakdown, the need for formal legal agreements, conflict management, alignment of strategy, performance measurement, unclear policies, need for education, trust and control issues, and nepotism.

A professional FEA is trained to treat the family enterprise as a whole system.  A system is a network of independent components that work together to try to accomplish the aim of the system.  There are five principles when taking a systematic approach to family business:

  • The whole is greater than the sum of its parts
  • Organizations seek “homeostasis” (i.e. they like to keep the status quo)
  • Patterns of behavior are predictable
  • Every action creates a non-linear reaction
  • Interfacing life cycles imply constant change (…and there are many life cycles to consider for the owners, business, industry, individuals, the family as a unit, etc.)  

With all the complexities that can predictably arise, and the tendency for clashes to arise in the absence of careful planning using the expertise of a specialist FEA, and the input of a multi-disciplinary team of advisors, there is a tendency for family business families to fall into traps that prevent them from being successful family enterprise families, and otherwise allowing the enterprise to remain in the family for generations to come.

There are 5 key elements to ensure continuity of a successful family enterprise, which intertwine to add strength to the enterprise, including:

  • Business strategy – clear definition and agreement of where the business is headed under strong leadership
  • Wealth integration – to use all the resources of the family enterprise to assure success
  • Intrapersonal clarity – roles and responsibilities defined with low risk of dissention
  • Ownership alignment – the goals, mindset and benefits of ownership are aligned
  • Governance formalization – clear need for systems to maximize continuity success

The FEA designation is still quite new in Canada, with fewer than 500 across the nation.  The expertise of FEAs is unparalleled against other business advisor qualifications, and should play a formidable role as part of the multi-disciplinary team in any business transition strategy.

Jeff Halpern, CPA, CA, TEP, FEA is a 2020 graduate of the FEA program, and works as a Business Succession Advisor at TD Wealth. He has practiced for more than 40 years as a CPA and cross-border tax advisor to business owners around the world, but freely admits that the dimension of his skills was significantly enhanced from the FEA program.

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