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The Emperor Has No Clothes

Remember the fairy tale where the emperor loved elegant clothes and loved showing them off to his people? Remember how 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? Remember how the emperor wanted to appear knowledgeable and intelligent and so he commented on how beautiful the suit was? Remember that everyone around the emperor didn’t want to appear stupid or incompetent and so told him how great it looked? Remember how he walked completely naked among all his subjects until a young child, who had no important job, yelled “but 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 the Founder/Entrepreneur will not make it a condition of being on the Board that these “advisors” become “yes men” (or women). In fact, more often than not, the Founder truly expects those he/she selected to tell the truth and to voice any objections. 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”) establishes requirements designed to ensure effective and independent audits of publicly-traded companies. 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…that is, 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.

Family business owners can be lulled into thinking that his or her wisdom is always correct. Sometimes, even attorneys for family businesses agree with the founder for fear of losing a client. Recently, in an advisory board meeting of a family business, a grandson of the founder stated, “If Grandpa wants to do this, then I’ll vote for it.” Founders may believe that if they wish it, it shall be done. Great family business founders surround themselves with independent-thinking advisors who, sometimes, even say “no, that cannot (or should not) be done.”

In addition, 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. There are times when no one wants to be the bearer of bad tidings. Family business advisors need to be trusted counselors —the persons who the founder knows will always tell him or her the truth–even if the information is unwanted or unpopular.