Family businesses are exactly that: a combination of family and business, of business and family. At their best, that special mixture supports agile, quick decision-making. But it can also complicate decisions, introducing conflict that may last for years. To give both business and family the attention they deserve, families should consider creating a family council.
What is a family council?
Family councils help business families govern themselves. Using family councils, families can make and implement decisions better and more strategically—and with less conflict. A family council helps families balance the needs of the family and individual family members with the demands of the business, in the short and long term.
Some business owners believe that family councils only make sense for larger families or those that own large companies. In reality, family councils benefit families and businesses of any scale. Every family has important decisions to make. Every family has financial and educational needs, membership rights and responsibilities, as well as specific visions of continuity and core by which they live.
How would a family council help me?
Family councils provide practical benefits to both business and family. Sometimes they help merge the two; sometimes they help set boundaries. Here are 10 benefits you may gain from a family council.
- Promote consensus-building and family unity.
- Groom family members as leaders, shareholders, and directors engaged in stewardship of the family business.
- Focus the discussion on business succession.
- Teach family values and discuss rights and responsibilities.
- Provide an opportunity to share, discuss, and support each individual's dreams and goals and recognize individual achievements.
- Create a connection for those family members not involved in the business.
- Educate family members about the complexity of running a business and the need for ongoing reinvestment.
- Coach family members on confidentiality, effective communication, critical thinking, problem-solving, financial planning, leadership, and other life skills.
- Prepare the family for inevitable reorganizations and transitions due to births, deaths, marriages, divorces, disability, and business and economic downturns.
- Conveys a positive message to employees and outside stakeholders, and illustrate that the family and the business are committed to good governance.
How do I set up a family council?
There are two basic steps to setting up a family council.
First, establish a shared purpose. Each family has its own reasons to set up a family council and its own goals.
Second, develop a meeting format and determine how often the council will meet.
For the first year or so, meetings take place quarterly. This gives the opportunity to create policies and a mandate, and for the family to get used to meeting in a more formal way. The first few meetings of the family council typically clarify a common vision and set policies for such things as communication and discussion, confidentiality, decision-making, and conflict management.
Beginning in the second year, the family meets every six months, often punctuated by an annual retreat.
What happens at a family council meeting?
Family council meetings should include a business component, a learning component, and a social component.
The business component might include discussion on philosophy, strategic direction, wealth, purpose, and investment. The educational component could focus on personal development or team-building activities, or might educate new members on the family's values, culture, and traditions. The social component—where fun is mandatory—typically includes activities to enhance relationships and build unity.
Specifics will vary depending on what is topical at the time. In general, families discuss next-generation involvement in the ownership, management and leadership of the family enterprise, family and business conduct in the community, business performance that may impact the family, contingency plans for leadership and ownership, and retirement plans. Consider adopting meeting rules that detail guidelines for communication, problem-solving, and decision-making.
As the family council is also a forum for education, try formalizing the meetings along the lines of a business or not-for-profit board. The council can adopt some basic guidelines in the early days while it engages a trusted advisor as a meeting facilitator to help develop its own meeting rules. Learning effective meeting behaviors is a learning opportunity in itself. Family councils often bring in outside experts to share knowledge and experience on finance and business, philanthropy, business succession and wealth, and continuity planning.
When should I set up a family council?
There is never a bad time to create a family council. That said, try to initiate the process in the earliest days of your business growth. This way, it will evolve as your family and the business each grow. Most important, this type of family council anticipates long-term issues so they may be addressed proactively.
Many business owners wait to set up a family council when they foresee a major business or family event. Succession, or business transition, often pushes family councils forward.
By waiting until such an acute need arises, however, business owners may find it more difficult to solve problems or capture opportunities. Just like with purely business decisions, it is easier to solve issues before they develop into acute issues. Setting up a family council early can solve late-breaking issues.
Who participates in a family council?
Most adult members of the family are invited to participate in the family council. This usually includes those who marry or are adopted into the family. Some families choose to include teenagers who express interest in the structure and are mature enough to keep discussions confidential. Each person who does attend is encouraged to actively participate, knowing they will be heard and understood.
It is important to develop a framework defining authority, responsibility, and accountability for key roles and committees. Key roles include council chairperson, secretary, meeting chair; key committees, a social committee. The first order of business deciding how people will be appointed or elected and how long each term of office will be. By using this framework, the family maps out the expectations for those who choose or are chosen to play a lead role.
To learn how you can set up a family council for your business family, reach out to our Business Transition Services team.