What is a Family Council?
Lisë Stewart and Matt Kerzner discuss the value and purpose of creating a family council – including the structure, process and potential pitfalls.
LISË STEWART:Hello, this is Lisë Stewart along with my colleague Matt Kerzner from the EisnerAmper Center for Family Business Excellence. And we’re here to talk about some hot topics, right Matt?
Matt Kerzner: That’s correct.
LS: I know we’ve been chatting a lot about family councils recently.
MK: Yes, we have. So Lisë, we get a lot of questions about family councils. Can you give me an example of one and how it works?
LS: Probably the best way to go about it is to talk about a real life case, right?
LS: We worked with a family on the Gulf Coast. Now I’m going to change their names just to protect the innocent. They were in the seafood industry and we’ll call them the Shrimptons. The heads of the family were Jake and Jennifer. Jake actually started the fishing business with his father, who’s now deceased. So Jake and Jennifer really run the company. Jennifer doesn’t work as actively in it today as she used to. And then Jake also has a younger brother, Danny. Danny owns a minority share and has held a lot of odd jobs in the business. Now they’ve each got several children. First, Mark is the oldest child and he is married to Debbie and they’ve got two children who are 19 and 20 years old, respectively. Then Jake and Jennifer had two twins, John and Jack. Neither one of them is married today. Jack does have a daughter who is 22 years old from his earlier marriage. And then finally their younger daughter is Amy. Both Mark and Amy work in the business; the twins do not. Amy is married to Steve. They have two children. Again, older, early twenties and older teens.
When we were called into the business, the family, which originally had been pretty close, was beginning to experience some conflict. The main source of the conflict was that Mark was the oldest son, but Amy worked just as hard and was just as sharp. She discovered that Mark was paid more money than she was, so there’s the first red flag. And then Steve, Amy’s husband, kept saying “Amy, when your dad retires, you should be the CEO.” But Mark had always had his heart set on being CEO. In fact Danny, the younger brother, had thought that maybe he would also move up from the company to get a better position, but it had never really been talked about and there wasn’t a lot of clarity. Then we have this younger generation coming in and a lot of questions about how to can get into the company, what kind of a role they can have, etc. They’ve been starting to do some odd jobs in the business. The parents were also concerned about how to treat the twins fairly?
We suggested that they consider developing a family council. The purpose of a family council is to allow the family to come together with representatives and deal with some of these tough issues where they’re paying attention to how the business and their decisions impact the family. This is a chance to talk about some of the things that wouldn’t make sense talking about during the normal course of the business day. It also gives people who have married into the family business a voice at the table, a chance to ask those questions and get the bigger picture of the business.
MK: Who should be on the family council?
LS: We usually recommend that it is a representative from each branch of the family. So if you take the Shrimpton family as an example, Jake and Jennifer’s status with their brother Danny, so they might decide to say Jennifer might be on the council. She would represent that generation. And then each one of the children – of course they’re adults now – would identify somebody in their family group. It might be one of the parents, so Mark might decide to be on it or perhaps he’d like to nominate his wife, Debbie, or one of his sons, Theo or Dustin.
Each group would nominate someone. Sometimes these are rotating roles. Maybe after a year or two, somebody else from that branch will join. In some cases, families will decide that in any branch they want a representative from both the older generation and the younger generation. We usually recommend that the council be about 9 to 12 people, unless of course you have a really large family, then you may need to expand that a little. Another way to get family members involved, but not necessarily sit on the council, is to develop some small sub-committees that work on specific tasks. That way you might not sit on the family council, but you could be invited to work on, say, a family policy handbook, an event, charitable giving, or some other area. There are different ways to involve family members, either in the formal family council structure or in shorter-term, ad hoc groups.
MK: That’s a very important point. What are the key topics that the council might address?
LS: One, what are the values of the family and how should they be incorporated into the company values. How do those two things align? What are some of the important values and behaviors – let’s call it the organizational culture – that are key to the success both of the family and the business? Should those be integrated?
Another thing that we often talk about are ways in which family members can be brought into the business. What are the requirements? What are the competencies that they need to demonstrate? What kind of an education do they need to have, and what are the rules or the policies about bringing them in? Do they come in just because they’re a family member? Are they treated like other employees? Do they have the same sorts of goals and objectives? What kinds of professional development opportunities exist?
They might also talk about things such as compensation. How should that be set for family members? Do we follow the same policies that are in the business? What do we do in terms of discipline? What if you have a family member who’s not performing in the business? How are they going to be treated? We want to deal with those emotional issues before emotion is the issue, and start dealing with those in a neutral environment, such as the family council, before the problems arise.
Other things that they sometimes talk about are outside career development opportunities. Maybe you’ve got a family member who doesn’t necessarily want to work in the family business, but they’d still like to contribute in some way. Sometimes a family enterprise model might open up some other investment opportunities that the family would like to pursue. Another thing that happens is that the members who are active in the business will present the strategic plan so that family members understand where this company is going. What does it look like? Oh, that’s the future of the business. Now I know whether or not I might fit into that future. We want to open up those kinds of conversations. Planning big family events, like a retreat, can be really good, along with other events throughout the year, opportunities to celebrate what the family’s been able to achieve and so on.
MK: That’s great. Putting family councils together is so important and you talked about the importance of it, but let’s talk a little bit about some of the potential pitfalls.
LS: Someone might bring a highly contentious issue to the family council, but they don’t know how to deal with the conflict. So they either deal with it inappropriately, which might mean that there are more arguments, or it causes conflict in the moment, or they just put it under the carpet and don’t deal with it.
Council members need to be taught is how to deal with conflict in a way that’s constructive. Conflict is inevitable, and it can be really useful for decision making, but we need to be able to teach them how to deal with that conflict. Another thing is these should be formal meetings. When they’re informal – if they’re not run according to an agenda, if people don’t understand what’s expected of them, if they don’t come prepared and so on – other members of the council get frustrated. They should have a formal way – a formal methodology – for conducting these meetings.
Another thing is lack of participation. People sign up or volunteer for the family council but they don’t show up for meetings. Some general guidelines, policies or protocols for productivity – lots of Ps in there – need to be established up front. What are the expectations if you decide to be on the family council? This should be an educational opportunity. Family council members should learn about leadership, how to manage a meeting, how to solve conflict issues, how to move through and move toward solutions and make decisions together. There’s a wonderful opportunity for people to learn through this, but to do that you often need to start with a good facilitator who’s willing to teach some of these skills and methodologies. Managing expectations, using this as an educational opportunity, sharing information and being clear on communication are great ways to avoid many of the pitfalls that can occur.
MK: Thank you Lisë.
LS: Sure. As we’ve said before, family councils can be a really effective way to help family businesses come together in a collective fashion and do great things.