This month we continue our focus on one of the key governance structures employed by well-run family-owned businesses - the family council.
The primary purpose of the family council is to provide a forum in which family members as stakeholders in the business can articulate their values, their needs and their expectations about the business. It provides a structure for developing policies that will ensure the continuation of the long-term interests of the owners.
Fruitful discussions among family members during family council meetings and the sense of constructive collaboration that develops during these meeting prepare the family to cope well with the difficult times it inevitably will face in the future.
Membership in a family council changes as the family moves through time. Initially, the core membership consists of the owner, his/her spouse and their children. In the second or third generation of ownership, the council includes siblings, cousins, in-laws and other relatives who own significant shares in the business.
It is important to create a supportive atmosphere so family members can comfortably express their views. The meeting work best when the incumbent leader of the business manages them. He/she may be assisted in coordinating the meetings by any interested family member.
Agendas should be prepared and circulated before each meeting. All family members are encouraged to assist in the design of the agenda. Important family issues, as well as significant business issues, should be on the meeting agenda. Additionally, some time should be allotted for family members to catch up with one another by sharing what is happening in their lives.
A professionally qualified and objective consultant should be utilized during the first few years of family council meetings. The consultant can help structure the meeting and provide management assistance to the family. It is important to establish an atmosphere in the family council where family members can freely explore a wide variety of ownership-related issues, including those about which they are not very knowledgeable.
Toward this end, it is helpful to set up some guidelines for the meeting so all members will have adequate time to discuss issues that are important to them and to make sure no one unnecessarily dominates the meetings.
While one family meeting can't address all of them, the following tasks should be addressed during the first two years of family meetings:
· The construction of a family mission/vision statement. This statement should outline the family's commitment to the future success of the business they own.
· The determination of the family's values, i.e., a discussion about what is important to family members individually, to the family as a whole and to the family as owners of a business.
· The formulation of succession plans relating to both ownership and leadership of the business.
· The construction of guidelines for participation by family members in the business, as well as the training, skills and business experience they will need prior to being invited to work in the business.
· The completion of agreements on ownership, compensation, dividend and reinvestment policies and buy-sell arrangements. Agreements are also needed on the financial and estate plans of the owners.
Owning a family business is an invaluable opportunity for a family to grow together, to find expressions for their common dreams and to see that their values are adequately expressed through the business enterprise they own.
An effective family council will help family owners develop policies and plans to ensure their long-term interests in the business. It will provide them with an opportunity to grow and learn together and to develop a strong commitment to the future vitality of their business.