Nearly every family business is apprehensive about letting people, especially outsiders, into the inner workings and finances of the company.
But it's a big step, a very necessary one, if the business is going to attract talent, grow and flourish.
But who gets in?
That is the role of the owners' council, one leg of family business governance. It is the most important leg of the governance stool, as this group leads the overall vision of the family business and how it will conduct business.
The owners' council consists of family ownership and gives the family a forum to lay out its goals to the board and provide input or approval on major initiatives that the company wants to pursue.
Most family enterprises can be governed by a few structures:
Executive management group, led by the CEO.
Board of directors (or board of advisers).
The owners' council makes decisions on the big-picture goals of the family and family business and communicates these to the bard.
It develops its own by-laws, which include items such as defining who is on the owners' council, the number of members on the board, the mix of family and nonfamily board members, term limits and, ultimately, the selection of new board members.
This form of governance allows the family ownership to have direct input into the formation of the board and its mission and goals. When executed correctly, the board holds the executive team accountable for business results that align with the wishes of the owners' council.
Generally, owners' councils meet quarterly to review company performance, review goals and objectives, develop communications they have for the board and enrich their family relationships.
These meetings give owners insight into strategic initiatives the company is embracing, current and forecasted financial returns and any potential risks the company may face in order to make intelligent decisions.
Often, family businesses get tripped up as they begin to think about developing a board because their first thought is they are going to lose control. By first developing an owners' council, the family maintains control but allows the executive team (which may have family members) to run the business.
The owners' council's most important function is to hire the very best board members, who in turn build a high-performing executive team (not based on last name, but based on talent) and hold it accountable to produce results in line with the family's desires.
Family businesses are vital to our economy and can be the source of tremendous pride, personal fulfillment and wealth.
They also can be the dog that bites you every time you get near it.
If your family business is struggling with direction, communication or growth, or simply trying to function, look at how governance can help.
Tom Garrity is managing partner of Compass Point Consulting LLC in Bethlehem. He is a certified coach with Gazelles International and a certified exit planning adviser with the Exit Planning Institute. Compass Point provides growth and business transition consulting to small- and medium-sized businesses. He can be reached at 610-336-0514 or firstname.lastname@example.org.