Family communication as a risk-management strategy

By Barbara Spector

In multigenerational family businesses, family members' differing interests and values may create conflict around issues such as dividends, business strategy or family employment policies. Unresolved family conflict can cause a family ownership group to splinter, which could threaten the sustainability of the enterprise.

Creating a strong governance structure can go a long way toward mitigating such threats.

“Having a place where differences can be worked out is a great risk-management strategy,” says Doug Baumoel, founder of Continuity LLC, a family business consulting firm.

Baumoel moderated a panel discussion at the Private Company Governance Summit 2018 that focused on creating effective interaction between the family ownership group and the board. Panelists were Ronda Ritter Ray, lead family director at E. Ritter & Co.; Andrew Pitcairn, chair of the Pitcairn Family Council and a board member at Pitcairn; and Rebecca Peterson, a board member and family council member at Sasser Family Holdings.

Following are some key takeaways from the panel discussion:

• A family council is a means of informing the board about what the family is thinking, therefore mitigating risk to the operating company.

• Paying for family council work fosters accountability and professionalizes family council roles.

• Think of your family council as a training ground for future directors. Consider a board observer position as the next step in family director development.

• If just one family member (or a small subset of the family) is making all the decisions, the broader family will become disengaged. If disengagement continues over time, while the family grows, eventually family members will be less committed to continuing as owners of the business.

• Family members will generally be appreciative if those in leadership roles take the time to ask their opinions.

• Review your family council charter and other documents to assess whether they are still relevant, given changes in the family, advances in technology and other developments.

• Don't just be transparent — be transparent and inclusive. This means including family members in decision making, rather than telling them what has already been decided.

• Family council leaders might want to keep a list of the family's “elephants in the room” — major issues that prevent the family from being fully transparent. Before each family council meeting, review the list to consider whether the timing might be right to address any of these issues. Would a consultant be able to help with some of them?

• Be proactive about forming a communication platform such as a family council or owners' council. The best time to do so is before a major family issue arises. It's best to have a means to learn what family members are thinking before an argument “goes viral.”