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Estate and Financial Planning

Cultivating a Family Business Practice

By Monica G. Mittelstadt

Nationwide, only about 30 percent of family-held businesses survive the transition from first to second generation. This dissolution can be attributed largely to three factors: the crushing effect of the federal estate and gift tax, disharmony among family members, and poor business planning. A professional seeking to expand his or her representation of family-held businesses must develop and market a multifaceted expertise in an effort to prolong the life of the family business. This article represents a compilation of recommendations by several experts in the Real Property, Probate and Trust Law Section who discussed their views on marketing issues during a presentation at the 1995 ABA Annual Meeting.

The Lawyer’s Representation Must Be Multifaceted. The family-held business must use a proper strategy that includes entity (e.g., corporate or partnership), tax, and relationship counseling. A lawyer interested in marketing to family-held businesses must develop and communicate expertise (or an alliance with experts) in each of these three areas. It is preferable to develop one’s expertise and market oneself as a "family business lawyer" rather than simply a "tax lawyer" or "trusts and estates lawyer." According to Dean Fowler of Elm Grove, Wisconsin, "a [solely] tax driven estate plan can undermine business opportunity by diluting past effective management structures and can also undermine family harmony when centralized control is passed to multiple owners within the family."

Get to Know the Whole Family. Proper representation requires that the lawyer know the entire family: the pride and sometimes egocentricities of the founding generation; the driving energies or possible disinterest of younger family members and their spouses; family feelings toward outsiders; the strengths and weaknesses of the particular business; its potential for growth; and its competition.

It is important to identify the needs of the entire family, not just the needs of the primary shareholder. It may be wise to inform each of the family members that you represent them as a group, to make sure your representation does not infringe on conflict of interest rules. Many dynamic issues arise during the estate and succession planning process. Dr. Fowler has developed the Family Business Assessment Tool, which encourages the participation of all family members in an effort to recognize methods of promoting both business success and family harmony. This tool uses a questionnaire completed by each family member as well as by outside advisors and key nonfamily executives that is meant to lead to personalized analysis by flushing out issues that may otherwise simmer below the surface.

Work with the Client’s Lateral Professionals. In getting to know a family business, the lawyer works with and can learn from other professional associates, such as accountants, insurance agents, and investment bankers. Every business must have an accountant to prepare and file tax returns. Often insurance agents are brought in to provide key-man life insurance policies. Investment bankers and venture capitalists encourage small businesses to grow. It is essential to develop a good working relationship with professionals who complement the legal practice.

Demonstrate Your Credentials. Neill McBryde of Charlotte, North Carolina states that it is crucial to develop one’s credentials to gain referrals, with a goal of being known in one’s state or region as the solo practitioner or the firm estate planning group that best handles family-held business needs. To develop credentials, the lawyer can hold seminars or publish articles on topics of interest to family business owners and the professionals who service them. An excellent means of attracting interest in a talk or article addressed to these professionals would be to set forth the ways they can improve their client services. For instance, the lawyer can, in a "continuing education" format, update accountants on the tax planning techniques of limited liability companies, provide insurers a fresh look at wealth replacement insurance as a means of soothing ruffled family feathers, or show a roomful of investment bankers how sophisticated IPO structuring can be augmented by family estate planning. After establishing credentials, the lawyer should make sure he or she is known by, for example, sending seminar invitations to a wide mailing list with published articles and other evidence of an established position in the field.

Network to Form Professional Alliances. When marketing directly to potential clients rather than to lateral professionals, the best approach to gaining new family business clients is to offer a "whole package" representation geared to preserving the family business by incorporating elements that are otherwise piecemeal and uncoordinated: entity planning, estate and gift tax planning, insurance planning, and "people" planning. In doing so, the practitioner should form alliances with lateral professionals in seeking new clients.

A lawyer at a large law firm may be able to develop a team of experts from among colleagues, while solo practitioners or small firm lawyers may need to develop a network of associations to develop this "whole package" approach. An effective method of developing a network is to join family business associations or estate planning professional organizations. Another method is to develop a "whole package" newsletter to family businesses and their professionals, incorporating legal, tax, financial, and psychological advice in a readable, straightforward format.

Joel Sherman of Boston suggests a nontraditional "means of gaining expertise and exposure in a very credible environment" by participating in a center for family business. Mr. Sherman’s firm is one of the founders and active cosponsors of the Northeastern University Center for Family Business. According to Mr. Sherman, there are approximately eighty university-based centers, as well as several nonuniversity-based centers that provide the opportunity to be an active sponsor, participant, or consultant in an interdisciplinary approach to family business issues. Law firms and other professionals as cosponsors are actively involved in the creation, structure, and programming of these centers. Both the members of the center (usually multiple generations of family business owners) and professional cosponsors provide ample opportunity for marketing.

Retaining the Client. The methods discussed in this article may be successful not only in fostering new business but also in retaining established clients. The representation need not be only single transaction based if the practitioner understands the major transitions in the life cycle of a closely-held business, a proposition that is necessarily long term. Fair and knowledgeable billing should be part of this long-term strategy to ensure that the family business client feels that he or she is being fairly billed for the work performed and results achieved. To assist in this goal, progress reports and a full explanation of billing rates and procedures are advisable.

Conclusion. The family business market provides an excellent avenue for professionals seeking to expand their representation and consultation practice. To be successful in this marketplace, lawyers must be multifaceted and able to deal with the entire family, including family members who are active and inactive in the business. It is also essential to join other professionals in a team effort to serve the needs of the family by networking and forming professional alliances. Finally, because of the extremely personal nature of family business dynamics, it is important to establish a long-term strategy for dealing effectively in this market.

Monica G. Mittelstadt is an associate with Rogers & Wells in New York City.

This article is an abridged and edited version of one that originally appeared on page 59 in Probate and Property, September/October 1996 (10:5) .

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