Family council documents provide purpose and structure

By Katy Wilder Schaaf

A member of the Ritter family, owners of E. Ritter & Co., explains how the council uses documents as a tool to ensure that meetings are productive.

Developing a family council checks a lot of boxes for a growing multigenerational family business. A family council provides a mechanism to engage and educate family members in a setting that includes positive social bonding time. Councils are a mechanism to define and address the “business of the family,” reduce conflict and promote positive social experiences associated with the business. They also encourage family interaction across branches and generations.

However, once a council is in place, deciding how to best plan a council meeting can be a complex problem. Council leaders must ensure meetings are regarded as a good use of time and productive in order to retain buy-in from family members with busy lives. Our family business, E. Ritter & Company, was founded in Marked Tree, Ark., in 1886 and now spans six generations. E. Ritter & Company is the parent to Ritter Agribusiness, a farm management provider, and Ritter Communications, which provides telecommunications products and services in Arkansas, Tennessee and Missouri. The Ritter Family Council (RFC) represents three generations of family members.

As is true of many other family businesses, the need for a family council evolved as the family moved out of employment/management positions to mostly shareholder positions. The family council, established in 2008, represented an effort to keep this large, geographically dispersed group connected and educated about the business. The RFC grappled with questions that included: “What should we be accomplishing?” “How should we structure our meetings?” and “How can we best serve our family and its business?”

Each family has its own process to address the “business of the family.” The RFC used a family charter as a starting point. This document established the family council and required the family to engage in a process of collaboratively defining its mission and values. Our family charter was first drafted by a committee of family members (facilitated by a consultant) and later approved by the larger family.

In the early years of development, the RFC created a family employment policy, provided content for the yearly family meeting and worked on a plan to engage the young adults, who were largely disengaged from the company as few were actual owners.

Katy Wilder Schaaf will serve as a panelist at a session entitled "Evolution of the Family Council" at Transitions West 2018. The conference will be held Nov. 7-9, 2018, at the Ritz-Carlton Marina del Rey in California. Click here for more information.

As the family has continued to grow and evolve, the RFC has developed additional documents. This work was possible, in part, because of the advice of invaluable consultants as well as the development of two paid positions. One paid family position, the lead family director on the Ritter board, is also a liaison to the family council. The other role — my position — is to facilitate the needs of the family council: helping to plan social events and family events (such as the annual meeting, summits and family council meetings) and developing educational events for the family.

The RFC now has a two-year strategic plan that is updated annually based on feedback from our self-evaluation.

We have a budget that is reviewed and updated quarterly. Funds allocated in the budget are spent on programs such as social events in conjunction with the annual shareholder meeting, family council travel/stipend expenses, formal family education opportunities (e.g., conference attendance) and next-generation projects.

The RFC documents are described below, along with some pointers for families interested in developing versions that fit their unique needs and circumstances.

Family charter/constitution

The family charter or constitution is often one of the first documents a council creates. It defines the mission and values of the family who are in business together. While not a legal document, the charter can provide official guidance for a number of family meetings and activities. Subjects to address include:

  • Requirements for participation on the family council (e.g., age, shareholder status, blood relative vs. married-in).
  • Duties of a family council member (e.g., participation in meetings or conference calls, further education, attendance at family meetings).
  • Leadership roles in the family council (e.g., president, vice president, secretary).
  • Family meetings (e.g., frequency, who may attend).
  • Specifics of how the council is funded.
  • Specifics of how this document may be amended.

This is a living document. Create a process to review and revise the charter on a regular basis.

Attend to the language used. General language allows for flexibility and avoids the need for frequent amendments to the document. Specific language communicates unchanging certainties of a family.

Job descriptions

Many family councils consist of family volunteers. Other families choose to pay a family member for investing his or her time to support the council. Prior to creating a paid role, a council should develop a job description detailing general traits required for the job and specific job functions. In addition to defining the tasks that are needed to facilitate the family council, consider the following elements when writing a job description: educational requirements, sliding scale of compensation, and employee vs. contractor status.

Convene a small group to write job descriptions. If you have a large family council, it may be most efficient to use a task force to draft a job description; the full council would then review and approve the draft.

Self-evaluation

Embedding a regular “checkup” into the council framework provides family members with a mechanism for reflecting on its strengths and weaknesses. Self-evaluations can be more effective if they are accompanied by a list of the council’s recent accomplishments. Self-evaluations can provide helpful feedback on which accomplishments have best moved the family forward and can help the council set future goals. The process also provides family members with an opportunity to state their concerns about such matters as reimbursement for their time or the setting and structure of meetings.

Decide whether the feedback should be anonymous. Anonymous feedback can encourage openness. On the other hand, including names with the feedback can facilitate a better understanding of specific family members’ concerns.

Use an online survey tool. Make it easy for family members to complete the surveys by using a free online tool.

Strategic plan

The “business of the family” needs a strategic plan as much as the “business of the business” does. Creating a one- to five-year plan is one of the most effective ways to build purpose and intentionality into a family meeting.

Your family council strategic plan should include tasks that are accomplished at regular intervals and new council goals. Strategic plan items might include planning for a family retreat or meeting, discussing educational opportunities for the family, reviewing the council charter, creating a task force to plan a social event, and planning programs for members of the youngest generation. Use feedback from the self-evaluation to bolster a strategic plan. When family council members see their feedback incorporated into the council agenda, buy-in is often increased and the purpose is reinforced.

Include your family mission and values. Your family spent a long time discussing the family mission and values. Make sure this guidance is incorporated into the task-oriented work of the council. Consider including these at the top of the strategic plan to ensure the tasks of the council are consistent with the already-defined goals of the family.

Budget

A budget provides a process for a family council to better define specific activities, how they are funded and how much the family is willing to invest in a council. A budget may include:

  • Travel costs for family council members.
  • Family council honorarium.
  • Funding to attend outside conferences.
  • Funding for family social events associated with the business (e.g., a family meeting or retreat).

Decide who funds the council. A starting point of the budget is the decision about how the council will be funded. Will the funds come from the business, will the money be subtracted from dividends or will family members be assessed?

Include the business in the process. Developing and maintaining a budget often requires family collaboration with the business. Decide who will track receipts and enter updated numbers for the budget.

Policies

The idea of developing policies may seem too formal for a family business. However, as the business extends beyond the founding generation and family members begin to spread out geographically, policies can help minimize conflict. The process of creating family policies allows the council to discuss areas of disagreement before an issue becomes personal.

One of the most common family policies is a family employment policy (covering whether family members should be required to work outside the family business before joining and procedures for evaluating their performance and determining their salaries). Another example of a policy that addresses an area of potential conflict is one covering eligibility and nominating procedures for family members who wish to serve on the board of directors.

Determine if family-wide consensus is necessary. While the family council is often an elected body that has been chosen to represent the family, policies can be controversial. Decide if it is important for a policy drafted by the family council to be presented to and voted on by the whole family.

Benefits of the process

While family council objectives stem from each family’s unique culture, the process of developing family documents adds purpose to family council meetings. Collaboratively considering mission and values, working out resolutions to situations that can create discord and creating a self-review process can strengthen relationships and center the focus of discussions on “the business of the family.”

We hope the tools that have served us well will promote effective practices and maximize engagement among other families who have struggled with similar issues. FB

Katy Wilder Schaaf, Ph.D., is a fifth-generation family owner of E. Ritter & Company who works with the Ritter Family Council on a part-time basis. Outside of her family business work, she is a clinical psychologist whose work focuses on brain injury.

Article categories: 
Issue: 
July/August 2018

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