Family Business Articles
Getting Ready for Succession: The Use of a Family Council
Bruce Ball
BDO Dunwoody LLP
October 2004
Over the next decade, as baby boomers set to retire, family businesses will face an unprecedented turnover in leadership. Some owners will decide to sell; others, to pass the business on to their children. But whatever option is taken, it’s important, especially for the sake of peace within the family, to take steps now to make that transition as smooth as possible.
To that end, a family council –where family members plan their business’ next step – can help maintain harmony and prevent unnecessary difficulties down the road.
What is a Family Council?
A family council is an organized forum where family members participate in the development of the strategic plan and policies for their business. The meetings tackle the “forbidden agenda” – issues most may not be comfortable discussing – as well as lay down clear, sensible ground rules governing the family’s continued involvement in the business. Although family members may not agree on every point raised, each will have a voice in the process.
The key is to take that first step to create a council. Drawing family members together to discuss the business promotes a dialogue on the sometimes sensitive and difficult but nevertheless important issues. Without such a discussion, these unspoken matters can sit and fester, remain unresolved as times passes, creating severe problems later as the solutions available to resolve them shrink.
It’s important to note, family council meetings do not replace business meetings. Instead, the goal is to set policies through the interaction of family and the business.
Who Should be Involved?
Attendance at family council meetings is usually limited to family members who are active in the business, but there are persuasive reasons to include inactive family members, since all have a stake.
After all, the goal of a family council is to establish a unified and cohesive approach to the business.
On the sensitive issue of involving in-laws, there’s no right or wrong answer. Some families involve in-laws in family meetings, and some don’t. When deciding for your family, keep in mind in-laws will learn of any discussions that take place. In some case, their presence at the council ensures they know what was discussed instead of finding out secondhand, or hearing what someone thought was said.
What Issues Should the Council Deal With?
At a family council, all issues are on the table, except those relating solely to the business’ management, which are dealt with by those active in the business.
At the initial council meeting, ground rules for discussion must be set and followed, and the drafting of a family constitution.
While the issues a family council chooses to deal with are unlimited, and some common ones are set out below.
Key Issues For Family Councils
- Code of conduct for family council meetings
- Involvement of family members in the business
- How will we decide on who can join the business?
- What preparation or qualifications are required?
- What if the employment of a family member does not work out?
- Can in-laws join the business?
- Compensation and ownership
- How will we evaluate and remunerate family members?
- Who will be allowed to participate in ownership?
- How will we deal with a divorce?
- Family harmony
- How will we deal with conflict between siblings and generations?
- How do we educate in-laws on the business and traditions of the family?
- How do we deal with family members with financial or career problems?
- How will we keep non-active family members more informed and involved?
- What responsibilities do we have to the community?
- Management policies
- How much financial information should be shared among the family and employees?
- How do we retain good non-family employees?
- Leadership succession
- How will the next leader be chosen?
- How will the transition take place?
How Should We Start?
A one-day retreat in a quiet environment, away from work and home, offers the best non-confrontational atmosphere for family members to talk and deal with issues in a constructive manner.
To further reduce stress, social events should be planned, adding some fun to family gathering that will later help improve the quality of discussions during the council meetings.
The meetings can also be an educational forum, with experts in areas such as tax, estate planning, insurance, technology and legal issues invited to speak.
Should We Use a Facilitator?
An impartial third-party acting as facilitator improves the chances of the success for the first council meeting. Ideally, this person should be a professional consultant with broadly based commercial and financial experience, who is skilled in managing group dynamics and helping family-owned businesses. He or she should be responsible – after consulting the family – for setting the agenda, chairing the meeting, and creating an atmosphere in which everyone feels free to express their concerns.
After the initial meeting or meetings, many families hold subsequent meetings on their own, with family members taking turns acting as the chairperson for the meeting. These members may still call on a facilitator to help deal with difficult issues, or when the council reaches an impasse on a particular item.
As is the case with so many other issues facing family businesses, a council is not an instant solution to the problems facing the family and the business, but rather a powerful process to tackle those issues.
Learn more about our services for Family Businesses
