Educate. Communicate. Develop family policy with respect to the business.
Those are the primary aims of the family council, the third leg in governing a family business, following assemblage of an owner's council and then a board of directors.
Composed of adult members of the family, the family council may be the most challenging component – governance of the family itself.
The purpose of the family council is to create a formal setting where family members can learn about what is going on in the business and develop relationships among themselves. As part of its mission to educate, communicate and develop family policy, the council must establish a family constitution.
A family constitution is the family's policies and guiding vision and values that regulate members' relationship with the business. This written document can be short or long, detailed or simple, but every family in business benefits from this kind of statement.
Other areas that family councils take on include boundaries, roles, relationships, use of family wealth, communication problems and family member conflicts.
The family council typically meets annually, lasts one to two days and includes all adult family members, including in-laws.
Families need to decide at what age children should attend these meetings. Most families start bringing the younger generation into meetings at around age 16.
For the younger children, families should consider organizing group activities where the children can begin to learn about the business and develop relationships with their siblings and cousins.
Family council activities include learning about the business through presentations by family and nonfamily managers, discussing (not deciding) the direction of the company, being educated about what the company does, or about important skills such as reading financial statements.
It also is a good forum to get updated on changes in the family such as important events and accomplishments, and on changes in ownership. For example, have any shares changed hands since the last meeting? Should shareholders be made aware of any new tax laws?
And finally, it is a way to get together and have some fun.
Family councils are an important vehicle of communication for every family business.
Family members need to know what guiding principles will steer the overall management processes, as well as understand other family members' expectations about the existing and future management and ownership of the business.
All family members have their own plan for their lives, and they need information to make informed decisions.
Treating the family in a more formal, organized way can feel a bit strange at first. It may take a year or two for the family to grow into this more structured way of interacting.
But the value of this process is demonstrated in the strides so many families have made with these structures.
They have learned that in discussing issues that can be sensitive and raise complicated feelings, a little structure is a family's best friend.
A good family council knows its boundaries. It provides input to the owner's council, but it does not dictate business direction. And it does not cross over into the board's or executive team's domains.
Starting a family council begins with a kickoff meeting in which all adult family members are invited. This initial meeting is usually led by the owner's council president, who explains the purpose of the family council and creates a committee that will develop the family council bylaws.
The balance of the kickoff meeting is sharing information about the company and its direction, and then having some fun together.
When the bylaws have been completed, a special family council meeting is organized, and the bylaws are reviewed, revised as necessary and voted on.
Once bylaws are approved, the first item of business is the election of officers, who will be responsible for all future family council meetings, events and activities.
Families in business need to nurture members' feelings of trust and pride concerning the family and business, as well as build a sense of teamwork to keep a family committed and disciplined in its relationship to the business.
It is wise, therefore, in the family council to emphasize consensus decisions around family goals and policies and openness to various viewpoints, as well as significant transparency in company operations, decision-making and ownership holdings.
If the family is reluctant to engage in the discussions it needs to have in the family council, out of concern about potential family conflict, not understanding what these groups should do, or just being shy in these meetings, hire a facilitator to help organize the meetings.
Good structures that do not address the right topics are a costly waste of time.
Family councils, when properly composed and managed, can have a tremendously positive effect on the family and the business.
As one family business owner said, “The family council is the strongest arm of this business and this family.
“This is the way I had hoped it would be 38 years ago [everyone working together]. The difference is that now it's everyone's dream, not just mine.”
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.