A sign that you need family governance

By Barbara Spector

Many owners of multigenerational family enterprises say the key to their continued success is solid family governance. This usually includes formal, written policies as well as a forum where family business issues can be discussed (commonly called a family council).

In the startup stage, when the founder makes all the decisions, a business can often run smoothly without formal governance. But when more family members get involved, there will likely come a point where protocols must be set to keep the enterprise from getting stuck.

How do you know when you’ve reached that point?

Charlotte Lamp, Ph.D., a third-generation member of the Eddy family -- owners of Port Blakely Companies, which grows and markets renewable forest products -- says progress in governance usually begins with a pressing need for a conversation about untangling family and business roles.

“That is a part of beginning to professionalize the business,” says Lamp, who is family governance coordinator at Port Blakely Companies and the founder of Rockwood Consulting LLC.

In many cases, Issue No. 1 is the need to determine who may work in the business. That’s what happened in the Eddy family in 2000. Jim Warjone, then the CEO of the company, asked for volunteers to form a task force that would draft a family employment policy.

In preparing to carry out its mission, the task force immersed itself in learning about family governance. Eventually, the Eddy family voted to transform the task force into a provisional family council; in 2002, it was officially established as the Eddy Family Council.

Once established, family governance continues to evolve, generation by generation and sticky issue by sticky issue.

In the second and third generations, the mission tends to center on separating the family from the business. (For example, you might need a rule stating that a family member who doesn’t work in the business may not contact the CFO demanding to see all employees’ salaries.)

Past the fourth generation, the situation often reverses: Family governance work must center on reconnecting the family to the business. The switch occurs because by this point, only a small percentage of family members work in the enterprise, many have moved far from the hometown, and the family might have grown so large that not everyone knows each other.

“That’s when the reconnection needs to happen: How do you keep that family pride in the legacy business going?” Lamp asks. Family gatherings and other communication mechanisms are usually needed to build engagement. A formal education program to teach the family about its business should be developed if it wasn’t established earlier.

Lamp says the Eddy family, which comprises 142 family members, about 80 of whom are business owners, has now reached another crossroads: A task force has been established to research the formation of an ownership forum, a governance body that would be separate from the family council.

An ownership forum would be the venue to discuss the rights and responsibilities of owners and to educate shareholders on related issues (such as estate planning). This would enable the family council to focus exclusively on family issues.

“We really saw a growing need for some kind of formalization of the ownership,” Lamp says.

Charlotte Lamp will be discussing “The Evolution of Family Governance” at Transitions Canada, taking place September 13-15 at the Radisson Admiral Toronto Harbourfront. For information, see the conference website.