Guidelines for an effective family council

By Christopher J. Eckrich, Stephen L. McClure

Many families have experienced family councils as a form of governing the family. Almost always, the formation of the family council comes with very high expectations for a vibrant and productive governing entity. Some launch with great success; others struggle to gain enough momentum to get off the ground. Whether you are just starting a family council or have had one for years, much can be gained by considering the lessons others have learned in making their family councils work. The following five guidelines stem from the experiences of families who found out later what they wish they had known sooner.

1. Don’t make it ‘The Baking Committee.’ Involving family just for the sake of involving family often leads to further alienating those who are feeling powerless. Family councils work when they have real responsibility for real issues. Taking a bunch of individual family members who have little power and little voice and turning them into a group does not make for an effective experience. The result will be merely a group with little power and little voice. Family councils can certainly accommodate those who are less powerful than the business leaders, but a good family council requires active leadership. Council members will earn respect over time by addressing important family-wide activities and significant issues involving overlap of business and family. A family council provides opportunities for involvement and contributions for those who have not had them in the past, yet the council must have a mandate to produce broadly recognized value.

2. Create a charter. A family council that meets but is not clear on its purposes or areas of responsibility is likely to frustrate both council members and the broader family. An effective family council has a charter that identifies its purpose, roles, responsibilities and high-level goals. In many ways the charter serves as the operating manual for the council. An effective charter provides clarity around decision making at the family council level and in the broader family as well. It will contain processes for identifying members of the family council, terms and conditions for family council membership and an overview of the family council’s structure (e.g., will it have standing committees?) and reporting relationships.

The charter will reflect the unique circumstances of each family. For example, a very large family would likely seek term limits that would force rotation of family council positions among different family members over time, thus allowing greater opportunity for family members to contribute their talents and develop new family leadership skills. This enables a multitude of family members to experience both the joys and the frustrations of family leadership, and engages more family members in the process. Conversely, a smaller family would need to have term limits that are clear, but must acknowledge the fact that they do not have an endless supply of potential council members. Additionally, there may be some members who are very gifted with leadership talents and oriented toward serving the family; rotating them off for the sake of rotation ends up harming the overall family by limiting the contributions they can offer to the family. A charter communicates in writing a family’s unique philosophy of term limits and other features of the family council, as well as the mechanics of how the family council works.

3. Remain clear on the boundaries—especially family and business governance. New family councils sometimes misperceive that their role is to govern the interests of ownership. Unless the family has explicitly placed this function as a core purpose of the family council, attempting to act as ownership’s voice may create serious tension in the business. A family council is a group that serves as an executive team or representative body of a broader enterprising family. This broader family group is often referred to as a family association, which consists of all those eligible to vote on a family matter, including family owners and non-owners (e.g., spouses and those who have not yet received shares). The job of the family council is to make recommendations to the broader family association and to carry out their wishes.

The family council is also a separate entity from the board of directors, which represents shareholders. While the family council may be asked to lead research or discussion on how a board might be structured, or to educate the family on how the board works, the council itself does not have power over the board. Similarly, the family council should not usurp shareholder rights and responsibilities. The shareholders are the ones who signed shareholder agreements and who ultimately control the direction of ownership.

Additionally, a family council is not empowered to tell management what to do. While council members may speak with management about how to prepare for an upcoming family meeting or a presentation to the family association, it is not in the job description of a family council to direct management behavior. That is the board’s job.

Family councils sometimes become confused about their rights and responsibilities. For example, a family council may unearth concerns in the family about family employment in or leadership of the business. The family council may unwittingly begin crafting policy with the expectation that it will be directly implemented. Better that the family council share its findings with the family association, develop a family consensus and communicate directly with the board to report the family’s view on the matter and make recommendations. The council in this case should recognize that an employment policy, in the end, is a board and management responsibility.

4. Create and make progress on goals with deliverables. Family councils can’t be a social club, and even if they are clearly not, they must be wary of others’ perception. Lack of obvious family council productivity will not escape the attention of shareholders who didn’t believe it was necessary to form a family council or to fund it with business profits.

Setting concrete goals with associated deliverables is important in itself; moreover, it allows for others to see the results. For morale purposes, the family council members themselves need to see evidence that they are having an effect and making progress with concrete milestones. So do board members and management teams who understand the potential contribution of a family council, yet may worry about its effectiveness. Examples of concrete deliverables include:

• Code of conduct and conflict resolution procedures and policies.

• Family employment policy recommendations.

• Philanthropy philosophy and guidelines for collaborative grants.

• Results of assessment of the need for a family foundation or family office.

• Guidelines for family travel reimbursement.

• Shareholder education and development program.

• Education curriculum for all age groups across the family.

Of course, much of the value lies in the work and collaboration that take place leading up to these deliverables. More involvement means more buy-in and more recognition of the work the family council is -performing.

5. Write the job description before choosing the candidate. When deciding who will serve on the family council, who will be the chair and who will lead the education committee, all too often families skip the essential first step: establishing qualifications. When there is a job opening in the family company, the business leaders create a job description and list qualifications before they seek candidates. This is also good practice for family governance.

The advantage of first defining the family council chair’s job description and then listing possible qualified individuals is that it helps in identifying the right person for the role—as well as potential successors for the family council chair’s position.

For family council members, branch origin can be a qualification, but too often it is the most important and only one considered. Family councils don’t need to have equal representation from each branch of the family; they do well when they seek capable members across the family who meet the following qualifications:

• Communication skills—listening, persuading and informing.

• Win-win negotiation and group diplomacy skills.

• Maturity.

• Understanding and support of the family mission and vision.

• Accessibility to the entire family.

• Respect and trust from the entire family.

In addition to helping in the nomination and selection of members, family council membership qualifications serve as a reminder to members about what they should be doing after they have been appointed or elected to their roles. These guidelines also can serve as feedback factors when it’s time to evaluate family council members’ performance.

Christopher J. Eckrich, Ph.D. and Stephen L. McClure, Ph.D., are principals of the Family Business Consulting Group and authors of The Family Council Handbook (www.efamilybusiness.com).

 

 

 

 

 


 

 

 

 

 

Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Issue: 
May/June 2013

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