examines, above all, the perspective of the family business. This study ..... give the right advice and solutions within the management of the succession process.
Journal of Family Business Management, Vol. 6, Issue 3 Accountants’ role in the management of succession. Empirical evidence from Italy Francesca M. Cesaroni, Annalisa Sentuti Department of Economics, Society, Politics – University of Urbino, Italy Abstract Purpose – The aim of the paper is to understand which approach accountants opt for when providing advisory services to family businesses involved in a succession process. Design/methodology/approach – Data for this study was collected through a questionnaire survey involving 175 Italian certified accountants. They answered questions about their experience, attitudes, behaviours and opinions regarding family business succession. Findings – Accountants are mostly concerned with technical elements and solutions (hard issues) and are seldom attentive to relations and communication between family members (soft issues). They also underestimate the relevance of the ability to empathise with the family business owner and other family members. Despite literature’s recommendation to collaborate with other advisors from a variety of backgrounds, most accountants work on their own or with other experts on hard issues (notaries, lawyers and bank operators). All of these aspects may cause a discrepancy between family businesses’ expectations and accountants’ professional practice. Research limitations/implications – Results are mainly descriptive and limited to the perceptions and experiences of accountants interviewed. Practical implications – This study offers some guidance for the accountant’s professional practice. Even if the accountant’s technical skills are undoubtedly essential when addressing the central hard issues posed by succession, soft issues often represent the real problem to be managed or the most complicated one. Accountants should help less aware entrepreneurs to acquire a better knowledge of succession and to adopt a holistic approach, integrating every dimension and perspective involved. This means that succession should be tackled through an interdisciplinary approach. Originality/value – The research on the role of external subjects in family succession examines, above all, the perspective of the family business. This study offers an alternative approach, adopting the accountant’s perspective to analyse his/her role and experience in the management of succession. Keywords: family business, succession, business transfer, trusted advisor, accountant, Italy. Article Classification: Research paper.
Introduction In recent decades, several authors have analysed the continuity of the family business (FB), focusing their attention on the main actors of succession: predecessor and successor (Chrisman et al., 1998; Cabrera-Suarez, 2005; Cadieux, 2007). Less attention has been devoted to the analysis of external subjects not directly involved in this process, who can provide very useful support and help FBs to deal with problems associated with the succession process. Several authors (Morris et al., 1996; Salvato and Corbetta, 2013; Strike, 2012; Reay et al., 2013) confirm that the support of external advisors can be crucial for its success. Nevertheless, theoretical and empirical research within this theme are still limited. 1
Recently Strike (2012) emphasised the absence of a systematic study on this topic and has noted that “the majority of articles are more a product of consulting practices rather than a result of rigorous academic study”. In 2013, Family Business Review published a special issue focused on the role of FB advisors. Editors pointed out that “what is still missing is a systematic database that can advance knowledge about advisors and the process of advising”. They also emphasised the need to focus attention on FB advisors adopting a research perspective (Reay et al., 2013). Several authors have focused, in particular, on the role of certified accountants (hereafter accountants) (Swartz, 1989; Aronoff, 1998; Kaye and Hamilton, 2004; Lewis et al., 2007; Battisti and Massey, 2008; Barbera and Hasso, 2013), analysing their contribution to the succession process. In Italy, “accountants” are certified professionals who work as external advisors in all fields of finance, including taxation, financial, corporate governance, audit, accounting, financial reporting. The approximate equivalent is the Chartered Accountant in the European Union and the Certified Public Accountant (CPA) in the United States. In order to become an accountant in Italy, it is necessary to pass a special exam and have a membership in the professional accounting bodies (“Association of certified accountants”). In general, Italian accountants work in individual study or in partnership with other accountants and they primarily deal with taxation and financial reporting. In Italy, accountants are often the main point of reference for small businesses – which are mostly family owned – in many different fields. Accountants, in fact, frequently represent a strategic partner for FB owners, because they know the business characteristics and the entrepreneurs’ personal and family situation very well. They support FB owners not only in tax planning and balance sheets but also in main decisions related to the business (ownership structure, finance, mergers and acquisitions, other corporate operations, etc.) and the management of personal finance and family assets. Small FBs, in fact, cannot have access to a wide range of advisors. As a consequence, an accountant is often their only advisor, since small FBs turn to him/her for a number of different reasons related to business, ownership and family, including those concerning succession (Bruce and Picard, 2006; Lewis et al., 2007; Battisti and Massey, 2008). Therefore, Italian accountants often have a strong and personal relationship with the FB owners and a 360-degree view of the tax, financial and patrimonial situation of the firm, the entrepreneur and his/her family. For all of these reasons, their role in the continuity of Italian FBs and in the management of the succession process can be potentially very significant. This
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is why it’s important to know what their approach is when they provide advisory services to Italian FBs involved in a succession process. As noted by Jaffe et al. (1997), an accountant is often the most trusted advisor and he/she plays a central role in small and medium-sized FBs in many countries such as the US (International Federation of Accountants, 2010), Australia (Jay and Schaper, 2003) and the United Kingdom (Berry et al., 2006). Although existing research provides useful insights on the important role of accountants in supporting FBs during the succession process, many questions still remain unanswered regarding accountants’ approach. In fact, previous investigations on this topic predominately examine the FB perspective, without looking deeply into the perceptions, opinions and practices of the accountants. For this reason, this study focuses on accountants’ perspective and presents the main results from a questionnaire survey involving a sample of 175 Italian certified accountants. Questions were intended to comprehend accountants’ behaviour in supporting FB succession, issues they generally face and solutions most frequently proposed to solve problems raised by succession. Results from this analysis are useful in understanding how to help accountants to provide an effective advisory service for FBs involved in a succession process. In the remainder of this paper, relevant literature on the role that external advisors, accountants in particular, have in facilitating the management of succession and promoting its success is reviewed. Next, the methodology is explained, followed by main results from empirical research and conclusions. Literature review Many authors underline the dual nature of FBs, where two different systems coexist – business and family. They are characterised by extremely different principles, values, goals, motivations and expectations (Lansberg, 1983). This duality has profound implications for suppliers of consultancy services. FB advisors, in fact, need to have a wide set of skills, in order to balance business needs and family concerns, including family dynamics and family conflicts (Su and Dou, 2013). Several studies on this issue have highlighted the difficulties faced by many FB consultants, because of problems and conflicts within the family (Jaffe et al., 1997). These problems often go beyond the family level and interfere with the business, also hampering the effective execution of advising services. This is also due to the fact that FB consultants are often specialised in issues related to business (strategic, financial, legal or tax issues) but are 3
not trained to deal with the relational components of advising. This is why some authors suggest that family firm advisors should consider “the emotional concerns that affected both firm and family” (Strike, 2013). Tagiuri and Davis’s (1982) three-circles model is useful in understanding the complexity that consultants have to face when they relate to a FB. In this model, FBs are conceived as a system consisting of three different subsystems, which cause the occurrence of different problems, each of which would require the involvement of consultants with specific skills. FBs would then need a number of advisors from a variety of backgrounds, in order to offer a multitude of services to provide advice and support. Moreover, the three subsystems identified in the model by Tagiuri and Davis are partially overlapping and highly interconnected. Many of the typical FBs’ problems, in fact, are the result of interconnections between family, business and ownership. These problems, therefore, cannot be effectively addressed with a one-sided perspective, that is, by a single advisor who takes account of only one of the three subsystems (Lee and Danes, 2012; Lansberg, 2012). As claimed by Su and Dou (2013), “real issues are often more complicated and interconnected than the issues presented to a single advisor”. Therefore, many of the typical FB problems require the adoption of a multidisciplinary perspective, which postulates that advisors collaborate with other professionals, creating multidisciplinary teams, given that it is burdensome for a single advisor to cover all thematic areas (Goodman, 1998). As a matter of fact, Su and Dou (2013), through a qualitative analysis, have shown that a multidisciplinary approach improves the accuracy of issue identification, promotes a systematic analysis of the issue, favours an integrated total solution and increases the credibility of the provided solution. Furthermore, FB advisors should not only act as content experts, providing their expertise to solve problems related to single areas of FBs but also as process consultants (Kaye & Hamilton, 2004). Therefore, they should have the soft skills necessary to manage problems occurring in overlapping areas between the three subsystems, and relationships between family members and/or the enterprise. This approach is in line with Tagiuri and Davis’s (1982) three-circles model. It implies the need to adopt a unique advising approach, in which an emphasis must be placed on the intersections between family, business and ownership. This multilateral perspective is offered by advising models based on the systems theory, allowing us to address questions concerning a particular circle, while also considering other perspectives at the same time (Gersick et al., 1997). In particular, the need to adopt a multidisciplinary approach occurs when FBs are 4
involved in a succession process. In fact, the latter generates deep changes at the level of business, family and ownership. Most academics agree that the main difficulties of the succession process are largely due to its remarkable multidimensionality (Le Breton-Miller et al., 2004) and the variety of perspectives that must be considered in order to manage it without risks for the business and ensuring its continuity. According to some authors, issues raised by succession can be divided into “hard” and “soft” issues (Hoover and Hoover, 1999; Malinen, 2004). By referring to Tagiuri and Davis’ model, hard issues predominately relate to the ownership subsystem and refer to monetary, technical and legislative matters, concerning fiscal and legal aspects, financing, inheritance and ownership transfer. Soft issues mainly relate to the family and business subsystems and refer to emotions, personal feelings, relationships and conflicts between family members, the communication process, transfer of the entrepreneurial role, etc. Without a doubt, solving hard issues is important, but these solutions do not necessarily ensure the survival and continuity of the FB. In fact, the real complexity of succession does not arise from the transfer of ownership. This aspect is certainly crucial and should not be underestimated but it does not fully capture the real complexity of the succession process, which mainly concerns the transfer of the entrepreneurial role, raising a series of problems concerning relationships between predecessor and successor, between family members, between those involved in the firm and between family and firm (Fox et al. 1996). In effect, the success of the succession process may be compromised by problems such as: the difficult relationship between incumbent and successor (Davis and Harveston, 1999), the lack of shared values between old and new generations (Tàpies and Fernández Moya, 2012), conflicts between family members (Morris et al., 1997), difficulty in separating family and business issues (Davis and Harveston, 1998; Birley and Godfrey, 1999; Carlock and Ward, 2001), management of the overlap between family, ownership and business (Handler and Kram, 1988; Kets de Vries, 1993; McCollom, 1988; Ward, 2004). Other problems may arise due to the incumbent’s reluctance to retire (McGirven, 1978; Kets de Vries, 1993; Levinson, 1971) or to rivalries between members of the new generation interested in taking over business leadership (Ward, 1987). Other risks can result from successors’ inadequate training (Barnes, Herschon, 1976; Sentuti, 2008), from their difficulty to integrate themselves into the company and gain acceptance from employees, or from an inefficient transfer of knowledge and skills between incumbent and successor (Cabrera et al., 2001; Boyd et al., 2015), with risk of impoverishment of the company’s intangible assets.
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The multiplicity of expertise needed to effectively manage all of these variables is rarely present within the FB and a plurality of different advisors is needed, with different sets of skills, in order to address the full spectrum of issues raised by succession (Swartz, 1989). This is particularly the case for the first succession process, because the founder, successor and other family members have no experience with it. For this reason, the involvement of advisors can be crucial in order to effectively address problems associated with all four steps (trigger, preparation, selection and training) of the succession process (Michel and Kammerlander, 2015). As noted by Morris et al. (1996), in FB literature, involvement of outside consultants is considered one of the main factors that ensure the success of the succession process (Fox et al., 1996; Desai, 2007), especially in small-sized FBs. Some authors argue that external experts may act as facilitators or professional moderators (Jernigan and Lord, 2008). Swartz (1989) emphasises the need to adopt a multidisciplinary approach, and Ip and Jacobs (2006) warn that the dual nature of FBs makes succession a “unique, case-by-case process, where a one-size-fits-all mentality is simply not appropriate”. This means that advisors must to be “sensitive to the aspirations and needs of their target group for assistance” (Westhead, 2003) and be in tune with customer’s needs, even if they are unexpressed. Advisors need to “go beyond the issues presented to them in order to probe for the real issues facing the client” (Su and Dou, 2013). Several authors have focused, in particular, on the role of accountants (Swartz, 1989; Aronoff, 1998; Kaye and Hamilton, 2004; Lewis et al., 2007; Battisti and Massey, 2008), analysing their role in managing the succession process. Accountants’ advisory service can be potentially very significant, given that they are often the main reference point for consulting and support (Reddrop and Mapunda, 2015), above all for small and medium-sized businesses (International Federation of Accountants, 2010). Furthermore, accountants are often very close to FB owners, since they turn to accountants for a wide range of problems related to business, ownership and family, including those related to the succession process (Bruce and Picard, 2006; Lewis et al., 2007; Battisti and Massey, 2008). Jaffe et al. (1997) first noted that accountants are often considered the trusted advisor, defined as “the most-relied external source of business advice for members of FBs […] with whom family members have enjoyed long-lasting professional relationships” (Michel and Kammerlander, 2015). Nevertheless, several studies show that their advisory services do not always fully satisfy FB owners’ needs and expectations (Sawers and Whiting, 2010; Cesaroni and Sentuti, 2014; Reddrop and Mapunda, 2015). 6
Sawers and Whiting (2010) carried out a number of interviews with some small New Zealand businesses in order to understand the role played by accountants in the management of succession. Interviewed entrepreneurs emphasised the importance of a long-term relationship between accountant and FB, accountant’s ability to be fair and impartial, their ability to develop a relationship based on trust and honesty with their clients, as well as their ability to give the right advice and solutions within the management of the succession process. At the same time, research shows some limits regarding accountants’ ability to solve all of the problems associated with succession. In fact, according to FB owners, the involvement of an accountant may be essential in addressing hard issues, but the prevailing idea is that accountants are not the suitable person to address soft issues. Nicholson et at. (2009) also confirm that in New Zealand accountants are the main reference point for many FBs involved in a succession process, followed by lawyers. On the contrary, the involvement of coaches or mentors is very unusual. Other authors (Morris et al., 1997) argue that accountants should create networks with other professionals and experts in family therapy and succession management. They should also help FB owners to look at the succession process in a broad manner and to adopt a holistic approach, in order to integrate different perspectives. More recently, Reddrop and Mapunda (2015) investigated the willingness of FBs to seek external advice on challenges they face. Their analysis highlights that accountants are the most frequently used professional advisors, but dissatisfaction with many advisors’ “soft” skills was prevalent. The authors also underline empathy and listening skills as the determinants of successful practice. Contrary to previous research, they found that widespread peer recommendations of professional advisors impart instantaneous “vicarious” trust and are more common than long-standing relationships between FB owners and advisors. Entering into Italian context, research on this topic is very limited. Results of two investigations (Cesaroni and Sentuti, 2014) focused on the approach of FBs to succession and advisory services show that FB owners’ opinions about accountants’ role are ambivalent. On one hand, data confirms the central role of accountants in helping FBs to face the challenge of succession. On the other hand, authors underline that several problems have emerged in regard to the relationship between FBs and accountants, since they aren't always capable of fully responding to clients’ expectations and offering effective support. Several FB owners are not fully satisfied with the support received and the methods adopted by accountants. They often define their advisory service as fragmented and inefficient. In particular, FB owners complain about the inability of some advisors to immerse themselves in the reality of 7
the company and the family and to understand the complexity of the FB. They also complain that accountants are often too focused on specific technical elements, at the expense of psychological and interpersonal ones, which instead are considered crucial by entrepreneurs. Authors highlight that in only one case the FB has been fully satisfied with the external support received, because the consulting firm has been able to help the company plan and manage every aspect of the succession process. This consulting firm has worked employing a multidisciplinary team of four professionals (an accountant, a psychologist, a lawyer and a consultant expert in succession). This team is also connected to a network of external experts and technicians, who provide additional expertise to complement skills possessed by the group. Summarising, accountants are often considered to be the main reference point for FB owners, however, emphasising that they are not always able to fully satisfy the FB’s expectations. Although existing research provides useful insights on the important role of accountants in supporting FBs during the succession process, a systematic study on FB advising is still lacking (Strike, 2012). As noted by Reay et al. (2013) “what is still missing is a systematic database that can advance knowledge about advisors and the process of advising”. This is especially true for the role of accountants. With few exceptions (Battisti and Williamson, 2015; Reddrop and Mapunda, 2015), existing studies on this topic have ignored the accountants’ point of view and their experience in dealing with succession. So many questions regarding accountants’ approach during the advisory process still remain unanswered. Therefore, this paper aims to help fill the gap, by focusing on the role of accountants, in order to understand how they intervene and which advising model they adopt when they provide advice and support for FBs involved in a succession process. In particular, drawing from Tagiuri and Davis’s three-circles model (1982) and from advising models based on the systems theory (Gersick et al., 1997), authors wonder if accountants are able to face problems, which arise through succession, by adopting a multidisciplinary approach and addressing both hard and soft issues. Results from this study contribute to deepen the knowledge of this theme and to go to the root of misalignment between FBs’ expectations and accountants’ advising practice. It also aims to identify some useful indications for FB practitioners who work within the field of succession. Method
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The purpose of this paper is to understand the approach accountants adopt in providing advisory services for FBs involved in a succession process. In particular, it aims to find out if accountants are able to adopt a multidisciplinary approach and to address the full spectrum of issues facing a FB during the succession process, by interacting with different types of advisors. In order to answer this research question, a questionnaire survey was carried out among a sample of Italian accountants. In particular, the questions included in the questionnaire were intended to recognise: • problems brought up by the succession process that accountants more frequently address in their advising process; • main solutions suggested by accountants for the management of the succession process; • accountants’ perception of the most important aspect to face in managing the succession process; • accountants’ attitude towards interacting with advisors/experts with diverse backgrounds and creating multidisciplinary teams. As previously stated, the succession process raises a wide range of hard and soft problems, which cannot be solved by a single advisor. For this reason, it is important to know if accountants manage the advising process by themselves or if they are prone to create/participate in multidisciplinary teams in order to respond to the holistic needs of the family firms while also trying solving both family and business issues. The questionnaires were administered between March and April 2012, during two days of training devoted to certified accountants operating in a province in central Italy. There were 552 questionnaires distributed and 191 questionnaires completed and returned. The response rate was quite good, standing at 35%. However, 16 questionnaires were discarded because they were not completed correctly. Ultimately, the survey enabled us to obtain 175 fully correct and completed questionnaires. Whereas the total of certified accountants operating in the research province amounts to 630, this sample can be considered representative at a 95% confidence level and ± 6.3% margin of error1. 1
Raosoft. (2004). Sample Size Calculator. Retrieved at 30-10-2015 from: http://www.raosoft.com/samplesize.html.
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Characteristics of accountants included in the sample are described in Table 1. Table 1 – Accountants’ characteristics – INSERT TABLE 1 HERE –
Main results In order to understand the practices adopted by an accountant, including their experience and opinions regarding the succession process, they were first asked if and how often they addressed issues related to succession in the last five years. Data shows that 151 interviewed accountants (equal to 86.3% of the sample) claimed to have dealt with issues related to succession. However only 3 (1.7%) dealt with succession issues “very often” and 28 (16%) “often,” while most accountants (120, equal to 68.6%) faced succession issues only a “few times”. Finally, 24 accountants (amounts to 13.7% of the sample) have “never” dealt with succession issues. The following questions from the questionnaire were only subjected to accountants that faced succession issues at least occasionally in the last five years. First and foremost, accountants that faced succession issues were asked to state more frequently addressed problems (Table 2) and the operations/solutions proposed (Table 3). With regard to problems faced (Table 2), as expected the accountants mainly dealt with hard issues (or technical issues), concerning ownership structure (48% “often”), fiscal problems (34% “often”), financial issues (“often” 32%) or family’s assets (“often” 32%). Accountants are rarely concerned with soft issues, concerning communication between family members (21% “often”), conflicts between senior and junior or between juniors (“often” 18%) or issues concerning the successor’s training process (“often” 11%). Table 2 – Problems faced by accountants – INSERT TABLE 2 HERE –
These results are consistent with findings from previous empirical studies (Sawers and Whiting, 2010; Cesaroni and Sentuti, 2014). They confirm that an accountant’s involvement is essential to solve hard issues, but it’s inadequate for soft ones. For this reason, FB owners are less likely to turn to their accountants to solve conflicts between people involved in the succession process. FB owners appreciate accountants’ competences and their technical 10
expertise in accounting, finance, management and organisation. However, thanks to personal knowledge acquired over the years, accountants might also provide valuable assistance in resolving communication problems or, at least, in intercepting the existence of such problems. In addition, it is interesting to note that the problems concerning relationships among family members, in contrast to those between senior/junior and between juniors, are quite frequently faced by accountants (31% “often”). It could be, that in the two circumstances, different subjects are involved, and they interact in different situations. In the first case, conflicts involve fathers and sons, or siblings, and it primarily concerns the family context. In the second case, contrasts arise between members, not necessarily bound by family ties or belonging to the same family. In this instance, conflicts mainly concern company and ownership structure (which surprisingly doesn’t turn out to be the issue most frequently addressed by the interviewed accountants). Therefore, accountants will give priority to reconciliation between shareholders rather than between family members because their professional competences are stronger on the first front rather than on the second. Accountants are also rarely involved in succession planning (“often” 27%). Literature on FBs is now unanimous in considering succession planning a necessary process, and many studies have highlighted the central role that the accountant can have in helping entrepreneurs in the planning process (Kirkwood and Harris, 2011). However, FBs involved in a succession process – although they are aware of the necessity to plan it – are still reluctant to involve an external person, albeit qualified, in succession planning (Cesaroni and Sentuti, 2014). In regard to the operations that accountants proposed to FBs involved in a succession process, Table 3 shows that they primarily suggested technical solutions, which largely focus on the business, such as sale or transfer of a business (“often” 40%, “sometimes” 54%), business lease (“often” 33%, “sometimes” 49%) and other operations like corporate split, merger, and so on (“often” 26%, “sometimes” 55%). Unsurprisingly, accountants rarely recommend involving a psychologist to help a senior and/or junior to resolve personal conflicts (“never” 98%) or a family counsellor to resolve family conflicts (“never” 97%). Furthermore, they very rarely recommended setting up a family council to promote communication between family members (“never” 93%). Table 3 – Operations proposed by accountants (%)
– INSERT TABLE 3 HERE –
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Even problems concerning successor business continuity and successor training are left in the background by accountants. Accountants have rarely suggested engaging a coach to follow a successor’s training (“never” 90%) or to appoint temporary management to manage the company until his/her successor had completed his/her training (“never” 86%). Coaches and temporary managers are, in fact, still unusual figures in Italy, especially for small businesses. This fact may explain accountants’ reluctance to propose such solutions to entrepreneurs. Similarly, a trust fund was an operation rarely suggested by accountants (“never” 66%, “sometimes” 32%, “often” 2%). A trust can ensure proper management of the company until the designated successor is able to manage it himself/herself. This prevents the company from being inherited by incompetent and unqualified family members (Henry, 2009). Technical solutions aimed at protecting businesses from family problems or conflicts between family members were also rarely recommended: setting up a holding company (“never” suggested 68%, “sometimes” 26%, “often” only 7%), signing of a “family pact”2 (“never” suggested 56%, “sometimes” 38%, “often” only 7%), drafting of a free and voluntary agreement between family members that is aimed at maintaining and strengthening their relationship with the company (“never” suggested 70%, “sometimes” 26%, “often” only 4%). Family agreements are very useful in managing the succession process but they are not very common in Italy. Accountants may promote sharing of values, rules, guiding principles by formalising them in a family agreement signed by all family members (even those not involved in the FB). This agreement can contain decisions concerning succession and, more generally, the involvement of family members in the firm: criteria for transferring the company’s share, composition of the company’s bodies and criteria for the involvement in company’s governance and management, family members’ career paths, family members’ remuneration, how to manage conflict, criteria for selecting the company leader in case of several candidates, criteria for the revision of the agreement, etc. Accountants also rarely suggested succession planning (“never” suggested 43%, “sometimes” 45%, “often” only 11%). This result can be the consequence of two different situations. In the first case, the entrepreneur who turns to the accountant may have already 2
A “family pact” (art. 768-bis Italian Civil Code) is a legal instrument that offers great potential in the management of succession. However, this tool is rarely used in Italian professional practice.
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planned the succession process and may only need suggestions to find the best and least expensive way to implement the succession process (for example, finding the best solution to transfer shares to successors). In the second case, the entrepreneur could turn to his/her trusted accountant during the (unplanned) succession process to solve problems that arise throughout the process (for example, conflicts between heirs for the distribution of company shares, the successor’s inability to guide the company, etc.). In this situation, the accountant can only quickly find the best solution to solve these problems and he/she can no longer propose succession planning. Based on their experience with problems faced and proposed operations for FBs, accountants were also asked about the most difficult aspects to manage in the succession process. According to their opinions, the most problematic succession aspect (Table 4) concerns family assets management (“very difficult” 45%, “difficult” 29%). Relationships between a senior and junior, among successors or family members, etc., are considered particularly difficult to manage (“very difficult” 37%, “difficult” 31%), as well as corporate issues (“very difficult” 33%, “difficult” 31%). Entrepreneurs have different opinions. They are more concerned with the motivation and preparation of the successor (Cesaroni and Sentuti, 2014), while accountants consider these problems of little importance. Accountants do not consider the succession’s socio-psychological aspects (e.g., the reluctance of a senior to delegate his/her role to a junior) difficult to manage (“very difficult” 27%, “difficult” 25%, “less difficult” 23%). On the contrary, literature and practice (Geddes, 2009) have amply demonstrated that these elements cannot be underestimated. Even entrepreneurs expect their accountants to deal with these issues (Cesaroni and Sentuti, 2014), although they’re not within the usual tasks of accountants. Consequently, there is a discrepancy between the view of the entrepreneurs and the accountants, in part, because of their different positions on succession. However, entrepreneurs and accountants should share the same goal, that is, business continuity and survival. And it is important to remember that this objective is most often put at risk by inadequate successors and/or predecessors unwilling to give up their role, rather than by technical issues related to family assets. Table 4 – More important succession aspects according to accountants – INSERT TABLE 4 HERE –
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It seems clear that, despite the central role that accountants have within the FB, they are not fully aware of the multidimensional nature of succession. They don’t adopt a systems perspective and they often underestimate soft issues related to the family sphere. In fact, not only are their professional practices focused on hard issues in terms of problems faced and operations proposed, but their perceptions also seem to undervalue the succession’s sociopsychological aspects and relationship dynamics. However, in line with previous research (Cesaroni and Sentuti, 2014), a higher sensitivity from the accountant toward soft issues is to be anticipated. In fact, these issues are often crucial for a successful succession. Indeed, prevention and management of conflicts between shareholders and/or between family members (especially between parents and children or between siblings) can only be beneficial to the company and its continuity. This doesn’t mean, of course, that accountants should be experts in family dynamics and interpersonal relationships. Accountants should rather avoid underestimating these problems and be prepared to draw FB owners’ attention to these aspects, suggesting, if necessary, the involvement of other experts. As we said before, a single professional cannot have all of the necessary skills and competencies to support a FB in dealing with the succession process. However, thanks to their privileged relationship with entrepreneurs, accountants may be able to intercept such problems and act as intermediaries between clients and experts in soft issues. In addition, accountants could facilitate communication between families and FB members. For example, they might suggest the organisation of formal meetings, and these meetings could also involve a third party in especially complex situations. Through coordination with experts in soft issues, accountants can continue to focus on hard issues, while offering a complete consulting service to FBs. In this manner, accountants could, though indirectly, also deal with relational, personal and family issues, which entrepreneurs themselves consider crucial (Cesaroni and Sentuti, 2014). For this reason, as previously highlighted by the literature review, it could be useful to collaborate with other professionals (Morris et al., 1997) and offer a wide range of services (Nicholson et al., 2009). In this perspective, the questionnaire also sought to understand if accountants have faced succession issues by working alone, in a team with other colleagues or with other professionals from other fields (Table 5). Table 5 – Who works with accountants in addressing issues related to the succession process? – INSERT TABLE 5 HERE –
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Despite literature recommendations, data clearly shows that almost half of all accountants claim to have addressed issues related to succession on their own, without involving other colleagues or professionals (46% “often”). In other cases, accountants have addressed succession issues in a team with other professionals (in fact, 30% of accountants say that they have never worked alone). Accountants have mainly collaborated with colleagues from the same office (26% “often,” 21% “sometimes”) and exceptionally with accountants from other offices (5% “often,” 28% “sometimes”). The reason for these results is probably in the spirit of competition among colleagues. In fact, it could hamper collaboration between professionals belonging to different offices. The idea of working in a team is perhaps more typical for accountants working in the same office. It is also interesting to note, that in some cases collaboration involves professionals from other fields (18% “often," 62% “sometimes”). One might think that collaboration with other professionals can imply a higher disposition to other disciplines and a different attitude towards soft issues. For this reason, using the Kendall’s tau, we have verified if a relation exists between the frequency of collaboration with other advisors with a different professional backgrounds (Table 5, column “Other professionals”) and the frequency with which accountants face problems related to soft issues (Table 2, columns “Organisation”, “Successor’s training”, “Relationships between members”, “Communication” and “Conflicts senior/junior”). Statistical tests show that there is no correlation between collaborations with other advisors and soft issues. In fact, the Kendall’s tau value is 0.102 with a bootstrap interval (-.037, .248), 1000 extracted samples and a confidence level of 95%. Therefore, this result demonstrates that collaboration with other professionals doesn’t necessarily mean adopting a multidisciplinary perspective and giving adequate attention to the soft issues. Thus, it is insufficient to verify whether the accountant collaborates with other professionals, but it is also important to identify who his/her interlocutors are. With this aim, accountants were asked to indicate which professionals they collaborate with more frequently. Consistent with findings from previous research (Nicholson et al. 2009), most of the collaborations take place with lawyers and notaries, and much less with bank operators and business advisors (Table 6). Table 6 – Who are the professionals who work with the accountants? – INSERT TABLE 6 HERE –
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Cooperation, therefore, mostly involves professionals with specialised skills in hard issues, which complement accountants’ technical skills. In this manner, accountants are able to provide a complete consulting service, at least from a technical point of view, combining legal, financial, managerial and strategic competencies. An exception was the low percentage of collaborations with tax consultants (“often” 6% “sometimes” 13%). However, it is important to consider that tax problems are one of accountants’ typical skills and it is only in special cases that they need to turn to external help for more specific advice. Finally, teamwork very rarely involves specialists in soft issues, such as psychologists and family counsellors. This result is not unexpected and it’s consistent with results concerning issues faced by accountants. This means that, even if accountants collaborate with other advisors and professionals, they aren’t necessarily more sensitive towards soft issues. On the contrary, their networks and collaborations mainly involve experts in business and ownership and their services remain limited to hard issues and technical solutions, without considering the family sphere. Nevertheless, accountants are well aware of their responsibilities in the management of succession. In fact, over half of the accountants (with regard to the entire sample) judge their role as absolutely crucial (51.43%) when helping companies deal with succession (Table 7). Furthermore, 43% of accountants maintain that their contribution is important but not decisive. A negligible percentage of accountants consider their role marginal and none consider it irrelevant. Table 7 – How do you assess an accountant’s contribution in helping FBs to manage succession? – INSERT TABLE 7 HERE –
The majority of those who consider their contribution absolutely essential, maintain the importance of technical skills, accountant’s preparation and impartiality and accountant’s knowledge of the company and family. Others claim that accountants have a global vision of the company (in terms of corporate, tax and family), its history and its potential, its strengths and weaknesses. And this knowledge might be able to offer an absolutely decisive support for the success of the succession process. Those who consider the accountant’s contribution to be 16
important but not decisive, think that senior or sometimes junior entrepreneurs almost always make the final decisions. Therefore, the accountant’s help is useful in assisting the company and the family to carry out the succession process. But such help is not essential because what really matters are not his/her decisions but those of the entrepreneur and the family. Moreover, they claim that the accountant’s role is not decisive, because at times, he/she is joined by other professionals (notaries, lawyers, consultants) who make his/her help important but not exclusive. Finally, accountants were asked about their most important features in favour of succession management and its success (Table 8). Table 8 – Main accountants’ characteristics – INSERT TABLE 8 HERE –
The two most important features of an accountant are: 1) adequate preparation with specialised skills (“absolutely crucial” 74%) and 2) a good understanding of the customer’s situation (“absolutely crucial” 68%). Other important features include: ability to listen to customer problems, including personal ones (“absolutely crucial” 54%); knowledge of customer personal and family situations (“absolutely crucial” 53%); ability to gain customer trust (“absolutely crucial” 48%). Important, but non-decisive, features are: availability to meeting customer requests (53%) and ability to empathise with the entrepreneur’s personal and family situation (44%). It is not surprising that entrepreneurs complain about the inability of some accountants to empathise with companies and families (Cesaroni and Sentuti, 2012; Reddrop and Mapunda, 2015). This is a critical point in the FB-accountant relationship. On one hand, accountants believe that the ability to empathise with customers is not decisive or even irrelevant (30%); on the other hand, entrepreneurs expect accountants to be able to empathise with their personal and family situation and identify the best solution for their company and their family. An accountant’s ability to understand its customer’s needs and FB problems is an important distinguishing factor. This quality is highly valued by entrepreneurs, as it allows accountants to offer a tailored advisory service, following a “case by case” approach (Kirkwood and Harris, 2011). Obviously, technical skills and a deep knowledge of the company are crucial. But accountants are aware that if they want to be good consultants for a FB, qualified specific skills are not enough; they must have a thorough knowledge of the FB owner and their family 17
dynamic. Strike (2012) affirmed that what truly differentiates effective advisors are the softer interpersonal skills. Dennis (1993) highlighted that in order to develop a relationship of trust with the family, all the advisors need to have empathy and understand different perspectives. Thus, even if accountants are mainly faced with technical problems, developing softer interpersonal skills seems essential when working within the FB in an effective way. Conclusions Previous research on accountants’ role in the management of the succession processes mainly examines the FB perspective, without looking deeply into the perceptions, opinions and practices of accountants. This paper focuses on accountants’ perspective and analyses whether accountants are able to face problems raised by succession, by adopting a multidisciplinary approach and addressing both hard and soft issues. Some implications can be drawn from the finding for both research and practice. On a theoretical level, our study contributes to the development of the body of knowledge on the relationship between accountants, FBs and succession, by noting that, despite literature suggestions, accountants are still not fully aware of the multidimensional nature of succession. They remain focused only on hard issues and, even when accountants collaborate with other advisors and professionals, are experts in technical problems regarding business and ownership structure. Relationships, family dynamics and other soft issues seem to remain “no man’s land” and, in many cases, the risk is to treat the “symptom” (by finding a solution for the problem posed by the FB, that isn’t necessarily the real problem) and not the “illness” (by removing causes that may undermine the effectiveness of the solution). On a practical level, this study offers some guidance for the accountant’s professional practice. Even if an accountant’s technical skills are undoubtedly essential when addressing the main hard issues posed by succession, soft issues often represent the real problem to be managed or the most complicated one. Accountants should help less aware entrepreneurs to acquire a better knowledge of succession and to adopt a holistic approach, integrating every dimension and perspective involved. This means that succession should be tackled through an interdisciplinary approach. Only with a comprehensive and thorough understanding of every issue of succession (relational, psychological, professional, financial, corporate, strategic, etc.), will real problems emerge; therefore, the most appropriate professional skills may be activated. To offer a truly effective support service for succession, accountants should be part of multidisciplinary networks of professionals and experts, able to pay adequate attention to both 18
hard and soft issues. This solution, although highly desirable, is probably difficult to achieve. However, it’s important that accountants are fully aware of all issues raised by the succession process, even with the limits of their technical skills, taking into due consideration both hard and soft aspects. Through this perspective, it is also important that accountants are open to discussion and sharing their knowledge with other professionals who could help the company in succession planning and management. Su and Dou (2013), for instance, studied how knowledge sharing among external advisors from diverse disciplines (including family meeting facilitators, lawyers, accountants, insurance brokers, family therapists, mediators and psychologists) affects the quality of the advising services they provide to their clients. They found that knowledge sharing improves advising services by improving the accuracy of question and issue identification, achieving a systematic analysis of the question, arriving at an integrated total solution, and increasing the credibility of the provided solution. Thus, if the creation of a multidisciplinary network of professionals and experts is desirable but difficult to realise, if nothing else the cooperation of all the different advisors must be improved, while respecting their reciprocal skills. It’s also suitable that the accountant interacts not only with notaries, lawyers and bank operators but also with experts in family relations and psychological issues. Accountants should act as an intermediary between the FB and other external experts. For customer satisfaction, and to contribute to the success of the succession process, it is not enough that the accountants use their technical expertise to take care of hard issues. It’s also important that they are able to detect problems arising from the interaction between the family and the business and to sensitise the FB owner on the usefulness of other types of external experts. They can support the FB owner in identifying the most appropriate figure and suggest or put the entrepreneur in touch with the right expert. In this sense, accountants can act as intermediary and assume a pivotal role in supporting FB succession, thanks to their own expertise, but also through the interaction with a wide circuit of multidisciplinary expertise. We think that accountants could play this role precisely, because they very often have a special relationship with entrepreneurs, they have gained their trust over the time, they know the business and the family and they are familiar with the problems of both. Better than anyone else, they can understand the dynamics of succession and the true source of the problems in small FBs with which they have often collaborated since the start up of the business. Results from this research are also useful in defining training requirements for accountants, necessary to help them meet the changing demands of their competencies and knowledge base of succession and business transfer. By profession, accountants are 19
analytical, rational and focused on data. In order to better understand the real complexity of the FB and to be fully aware of all issues raised by succession, it could be useful to integrate their technical skills with specific training on these topics with particular attention to soft aspects. This does not mean, of course, that accountants should know how to handle and solve psychological and relational problems, but that they should develop more awareness and sensitivity in regard to these subjects, taking them into account when they support the FB owner in the management of the succession process and also when they propose their technical solutions. Looking at the three-circle model proposed by Tagiuri and Davis (1982), the best solution risks losing effectiveness if it fits within a sphere (ownership), but the interaction between the other two (family and business) are not taken into due account. This study has undoubtedly important limitations. Results are mainly descriptive and limited to the perceptions and experiences of the accountants interviewed. More research on this topic is needed to gain a more complete understanding of accountants’ professional practices and their support in the management of the succession process. For instance, future studies can compare the efficacy of advising services offered by a multidisciplinary network with that of advising services proposed by accountants who work alone or only with other technical experts. Future research can also attempt to better understand how a multidisciplinary network of professionals and experts improves advising services from the FB owners’ perspective.
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Table 1 – Accountants’ characteristics Less than 10 years 35 20%
Past experience N° % Clients N° % Office
11-20 years 72 41,1%
Less than 50 82 47%
51 – 100 42 24%
Individual Study Individual with study without collaborators collaborators 23 61,25 13% 35%
25
More than 20 No answer years 62 6 35,4% 3,4% More than No answer 100 30 21 17% 12% Partnership 91 52%
TOTAL 175 100% TOTAL 175 100%
TOTAL
175 100%
Table 2 – Problems faced by accountants Issues (%) Ownershi
Frequency
p structure
Financ e
Tax
Family
Succession
Organizatio
Successor’s
assets
planning
n
training
Relationships between members
Communicatio
Conflicts
n
s/j
Others
Often
48%
32%
34%
32%
27%
28%
11%
31%
21%
18%
0%
Sometimes
40%
44%
43%
48%
43%
38%
27%
46%
35%
40%
1%
Never
11%
24%
23%
19%
30%
34%
62%
23%
44%
42%
99%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
26
Table 3 – Operations proposed by accountants (%)
Frequency Often
Trust
Family agreement
Holding
Temporary manager
Business sale
Business lease
Other corporate operations
2%
7%
7%
2%
40%
33%
26%
Sometimes
32%
38%
26%
13%
54%
49%
55%
Never
66%
56%
68%
86%
6%
18%
18%
Total
100%
100%
100%
100%
100%
100%
100%
Frequency
Coach
Succession planning
Family pact
Family council
Family Psychologi counsellor st
Other
Often
1%
11%
4%
2%
1%
0%
0%
Sometimes
9%
45%
26%
5%
2%
2%
2%
Never
90%
43%
70%
93%
97%
98%
98%
Total
100%
100%
100%
100%
100%
100%
100%
27
Table 4 – More important succession aspects according to accountants Importance
Aspects (%) Tax
Corporat e
Family assets
Finance Strategy
Organization
Sociopsychology
Personal relationships
Successor’s motivation Other and preparation
Very important
23%
33%
45%
30%
24%
31%
27%
37%
32%
1%
Important
31%
31%
29%
32%
35%
32%
25%
31%
25%
1%
Less important
22%
13%
9%
15%
16%
14%
23%
14%
21%
13%
No answer
23%
23%
17%
22%
25%
23%
25%
18%
22%
85%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Total
28
Table 5 – Who works with accountants in addressing issues relating to succession process?
Frequency Often Sometimes Never
Total
Alone
N° 69 36 46 151
% 46% 24% 30% 100%
With other colleagues from the same office
N° 40 31 80 151
% 26% 21% 53% 100%
29
With other colleagues from other offices
N° 8 42 101 151
% 5% 28% 67% 100%
Other professionals
N° 27 94 30 151
% 18% 62% 20% 100%
Table 6 – Who are professionals who work with accountants? Professionals (%) Frequency
Lawyers Notaries
Tax consultants
Business
Family
advisors counsellors
Psychologists
Bank
Specialized
operators
offices
Others
Often
39%
47%
6%
7%
0%
0%
7%
0%
1%
Sometimes
44%
37%
13%
21%
0%
1%
34%
5%
2%
Never
17%
16%
81%
72%
100%
99%
59%
95%
98%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
30
Table 7 – How do you assess an accountant’s contribution in helping FBs to manage succession?
Absolutely crucial 90 51,43%
Accountants contribution (N° %) Important Absolutely but not Marginal irrelevant decisive 75 3 0 42,86% 1,71% 0,00%
31
No answer
Total
7 4,00%
175 100%
Table 8 – Main accountants’ characteristics Accountants’ characteristics (%)
Importance
Specialized skills
Personal Being knowledge of Knowledge Ability trusted Availability entrepreneurs of the Emphaty Other to listen by and their business clients families
Absolutely crucial
74%
25%
54%
53%
68%
48%
22%
4%
Important but not decisive
17%
53%
35%
38%
20%
33%
44%
2%
6% 4%
19% 4%
7% 4%
5% 4%
8% 4%
15% 4%
30% 4%
90% 4%
100%
100%
100%
100%
100%
100%
Irrelevant No answer Total
32
100% 100%
