Organization Key to Family Business Success

 

 

Family-owned businesses need a formal structure for exchanging ideas and setting common goals.

The well-run family-owned business is led by three governing entities: an outside board of directors, management and a family council.

The board sets strategic direction, reviews the performance of senior management and is a sounding board for the CEO. It also ensures a succession plan is in place.

Management carries out the operational responsibilities, is accountable for results and ensures the business remains vital.

The family council develops policies to ensure long-term interests of the owner are met.

Some families have informal meetings during holidays to discuss the business and its future. The meetings are cordial and usually provide an update for family owners. Few questions are asked; few are invited. Difficult problems are avoided yet participants feel good about the fact that business information is shared with them.

But more substantive family meetings are necessary.

Family meetings, held regularly, help family members share goals, discuss problems, learn about the business and make decisions relevant to their ownership stakes. It also provides a forum for developing policies to ensure continuation of the long-term interests of the owners. The formal structure of these meetings is called a family council.

A family council, which meets two to four times annually, is composed of family members with a stake in the business.

There are numerous reasons to establish and maintain a family council.

· A family council provides an excellent forum for educating family members about the rights and responsibilities that pertain to their ownership stake and their employment in the business. The opportunities at these meetings for family members to discuss their values, as well as their sense of responsibility as owners, is invaluable in developing a shared commitment to the future success of the business.

· A family council can help the family clarify the boundary between family and business, reducing the likelihood that family concerns will inappropriately affect business decisions and vice versa. For example, a family council is an excellent forum for the family to discuss business concerns without those concerns contaminating family events such as birthdays, Christmas or Thanksgiving.

· A family council provides a structure to help families create a vision to guide their ownership of the business. Also, by articulating the family's intentions and commitments to the business, the family council will enable the business's leaders to make strategic plans based on the owners' intentions and commitments.

· The family council helps build strong family relationships. The dialogue that occurs around issues, concerns, conflicts and problems will help build trust among family members. These meetings will help family members develop good communication skills, good conflict resolution skills and good leadership skills. The meetings can help families identify and resolve conflicts before they become crises.

· The family council is a excellent forum for discussing and deciding what roles family members should play in the business. Who should be allowed to work there? What preparation, if any, is desirable? What will be done if a family member's performance detracts from the business? How will the firing of family members be handled should that become necessary? Discussing these issues will eliminate potential misunderstandings.

· The family council can help manage the relationship between family owners and the board of directors. Once the business has grown to a certain level, it will be necessary to have outside on the board. Family meetings provide an excellent opportunity to discuss and decide issues such as the optimal size of the board, as well as the qualifications outsiders must have to be productive.

In next month's column, I will further outline some of the issues pertaining to family councils and their role in ensuring the long-term success of family-owned businesses.

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