Guest blog: The emperor has no clothes
(Editor’s Note: This is the second in a series of columns by family business leaders and advisors with information and ideas about topics unique to family businesses, developed in conjunction with the Conway Center for Family Business. Succession planning is vital to every family business, so we begin our series with this topic.)
by Bea Wolper
Remember the fairy tale where the emperor loved elegant clothes and loved showing them off to his people? The emperor was hoodwinked by some con artists saying his new (and very expensive) fabulous suit was spun with gold thread so fine that only the smartest subjects could see it. The emperor wanted to appear knowledgeable and intelligent, so he commented on how the suit was so beautiful. Everyone around the emperor didn't want to appear stupid or incompetent so they told him how great it looked. Remember how he walked completely naked among all his subjects until a child, who had no important job, yelled “the emperor has no clothes on!”?
Unfortunately, some family businesses are a lot like small kingdoms where the family members are much like the subjects who are afraid to tell the founders the truth about a delicate subject for fear of being fired – or worse – cut out of the will! Entrepreneurs will often place family members, members of management and close personal friends on the Board of Directors or Advisory Board. Usually theounder/Entrepreneur will not make it a condition of being on the Board that these “advisors” become “yes men” (or women). More often than not, the Founder truly expects those he/she selected to tell the truth and to voice any objections or concerns. But, because of the forcefulness of the personality of the Founder, the advisors almost always go along. Because of his/her self-confidence, the leader believes his/her decisions are correct, and it does not occur to the leader that the advisors are agreeing out of personal interest or fear.
The Sarbanes-Oxley Act of 2002 (“Sarbanes”) established requirements designed to ensure effective and independent audits of publicly traded companies. Although most family businesses are not publicly traded, Sarbanes specifically mandates rigorous standards of corporate responsibility for directors and officers. Before Sarbanes, people would sometimes joke with the owner that his or her board was merely a “yes” board – a “rubber-stamp” board – one that would do just what the entrepreneur wanted: a board that never ever rocked the boat or questioned the authority or wisdom of the owner. Most people don’t joke about that anymore.
A family business owner can be lulled into thinking that his or her wisdom is always correct. Great family business founders must surround themselves with independent-thinking advisors who, sometimes, even say, “No, that cannot (or should not) be done.”
Founders need to hear ALL the alternatives regarding a particular course of action, not just the ones that will please. A family business's independent advisor will often be in the position of the child in the Emperor’s New Clothes, who tells the founder the information he or she NEEDS to know. In fact, many times an independent advisor will be the only person brave enough to tell the truth – such as, “Your son has a drug problem and may not be the proper choice for your successor,” or that “The amount you believe is right for the valuation of your family business is way too high.”
There are times when no one wants to discuss undesirable and disagreeable news or be the bearer of bad tidings. Family business leaders need to have trusted counselors – people who the founder knows will always tell them the truth, even if the information is unwanted or unpopular.
Bea Wolper is a co-founder of the Conway Center for Family Business and serves as an Advisory Board member. She facilitates the Center’s Women in Family Business and Succession Planning Peer Groups. She is a partner in the law firm of Emens & Wolper LLP, in Columbus, Ohio. Her practice focuses on succession planning, estate planning, general corporate law, contracts and the buying and selling of businesses, with an emphasis on family-owned businesses. Wolper and her husband, Dick Emens, the Center’s Executive Director, co-authored Family Business Basics: The Guide to Family Business Financial Success.