In times of growing complexity and constant change, family businesses are increasingly caught between the need to ensure continuity on the one hand and adaptability to market changes on the other. The entrepreneurial family is the guarantor of continuity in the family business.
The establishment of a family business council can help to better master this tension. Here we will explain all of its aspects, functions and benefits.
If you want to know more about the other parts of the Family Protocol, we have it covered in our article Family Protocol Explained.
What is a family business council?
The family business council is exclusively a body for the management of the family. Since the family council is not a corporate body, it differs from shareholder committees, which are often found as a corporate body in listed family businesses.
As business families become larger and more complex, more issues relating to family-business interactions need to be addressed.
Family councils play an important role in helping families through a business transition that is often informal and introverted, establishing rules and governance structures that promote family and business wellbeing and address issues related to the relationship between family members and their business.
Using the family council as a transitional tool allows families to manage the gradual transformation of their business from an often improvised, unplanned and poorly managed start-up to a well-structured and balanced enterprise guided by the family’s values and vision.
Family business councils activities & functions
Every family council is different and each family must follow its own path, depending on family dynamics, leadership structure, priorities and long-term goals.
These are some of the main functions of the family business council:
Purpose and meaning
- Reflecting on the question: ‘Why are we in business together?
- Working on the transmission of family values, vision and culture through family and business.
- Celebrating family achievements, traditions and history.
- Encouraging family involvement (especially by introducing the new generation).
- Refining and articulating a long-term family plan.
- Socialising, making friends and having fun together.
- Organising family philanthropy.
Education and development
- Exploring family business, business and rights issues,
- Setting up rights, responsibilities and privileges of the family business.
- Providing skills and experience needed for employment.
- Support for young family members (e.g. scholarships/risk funds).
- Encouraging personal and leadership development.
- Encouraging better family communication skills and habits.
- Planing family activities to shape and build relationships.
- Problem-solving and overcoming disagreements: developing mediation skills and guidelines.
Relationship with the company
- Determine the nature and extent of family involvement.
- Managing the drafting and updating of the family constitution.
- Distinguishing between issues that should not interfere with the running of the business.
- Creating a unified voice for the family.
- Promote a merit-based and needs-based employment policy.
- Agree on principles for appointing board members.
- Criteria for selection of family members and other members.
- Planning and preparation for leadership succession.
Decision-making and leadership
- “Opening the company to external professional influences”.
- Creating a bridge between family and management/board of directors.
- Communicate the strategic goals of the family to the board.
- Review and coordinate the work of the family board committees.
- Review the functioning of the family board (“code of conduct”).
- Coordinate with other family bodies.
Family ownership
- Establish guidelines on share ownership.
- Understanding of asset and property transfer plans.
- Reviewing the rights, responsibilities and roles of inactive family shareholders.
- Clarifying shareholders’ rights to company profits.
- Liaising with the wider shareholder base.
- Disseminate information and answer their questions.
- Identify family investment risk and borrowing and lending policies.
- Set and review company growth and return on investment targets.
- Create transparent succession and continuity plans for owners.
- Family wealth management.
- Align strategies (and funding) for exit opportunities.
Benefits
The benefits of a family council are primarily that it promotes family unity and consensus, as well as increased productivity and efficiency in the company.
Opening up channels of communication and separating the discussion of daily family and business matters allows family members to focus on the positive aspects of family relationships, skills and achievements.
In any relationship, there is a tendency for problem areas to seem big and overshadow what is good and what is working. The family council provides an opportunity for the family to redress this imbalance, become more comfortable talking and discussing, and reaffirm their commitment to each other, family values and business.
Also, family councils create a mechanism through which the family can interact positively with the business, optimising the benefits derived from family ownership in a way that provides the business with additional focus and motivation and, ultimately, the opportunity for competitive advantage.
Who needs them?
It is important to first understand the family, its goals, problems and strengths to determine whether a family council is needed and if it can lead them to the desired outcome.
For successful multigenerational family businesses, the family council is the crucible where the hard realities of business and the soft complexities of family merge into a holistic vision of the future.
Conclusion
Family councils help business families manage themselves. With family councils, families can make and implement decisions better and more strategically, and with less conflict. Family council helps families balance the needs of the family and its individual members with the needs of the business in the short and long term.
They also provide an open and safe space to plan and manage the family’s relationship with the company. They build the trust of family members in managers and directors who oversee the family’s strategic goals so that shareholders can focus on building cohesion and a sense of common purpose within the family.
As consultants for family businesses, we have been recommending family councils to our clients for many years. Advisory boards are often considered a prerequisite for all families with joint ventures, especially if the company has been in existence for more than one generation.
Resource: https://www.ifb.org.uk/media/1594/ifb_family_council_guide_web_290615.pdf
