Family Councils create a bridge between the business family and the family business board.
In this episode of the show I explain what a family council is, what roles and responsibilities they have and how you would typically elect members to the council.
I also cover the important role of the Chair of the family council, the skills they are likely to need and the way in which the Family Council interacts with the business and the family.
As ever if you would like any help with establishing your own Governance, please get in touch firstname.lastname@example.org or visit www.fambizpodcast.com/workwithruss for more information.
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Transcript of the Episode
But what it does allow us to do is to highlight really the importance of what we’ve been discussing in recent episodes. The whole purpose of governance is to help improve communication amongst family members in relation to the business. But so that painful and emotional situations can at best be avoided, but at least be managed in a way that, keeps everybody, within a set of, kind of guidelines and boundaries.
So Harry, Meghan have obviously made their decision as to what they want to do with their lives and the Royal family, which is probably one of the most famous families, and family businesses in the world doesn’t appear to have had the mechanisms within their own governance to help them deal with this type of situation.
So it’s not unusual that there are many, many other family businesses out there that don’t have these governance structures in place. And so the purpose of these episodes at the moment that are focusing on governance is to help navigate those challenges, is to help you to put the systems and processes and boundaries in place that mean if somebody in your family, and it might not be this current generation, it might not be the next generation, but the generation beyond that even may decide that actually I want to take a different path. And if there’s not a mechanism or process to deal with that, it can lead to conflict, which the vast majority of people in the vast majority of families in business will not want to, have, they don’t want to have those conflicts.
So that, that’s my kind of, five minutes on the Harry and Meghan. scenario. I do cover later on, in the. succession, series around leaving the family business, moving on from the family business. So again, I won’t cover that in huge amount of detail now, but, they’re obviously using the, assets and wealth of family members and, and part of the family business to allow them to follow what they want to do, which again, can be discussed in things like a family charter.
and, be discussed at family council meetings, which what we’re going to be running through today. but I just thought it was useful to give a bit of context around why governance is so important given that there is this high profile news story out there. so let’s get on with what a family council is.
and then we’ll talk a little bit more about why they might be useful for you and your family. And then as always, I’ll give you some tips on how to get started, with putting one in place.
What is a Family Council?
So what is it? in essence, it’s a forum that the family can use to manage the family affairs, but relating to the family business, perhaps it needs to, where putting that is, it’s a communication bridge between the family and the board that is operating and running the family business.
Now it’s normally made up of a cross section of different family members, and depending on the size of your family and however many generations and family branches are involved, it’s generally good practice to have it made up of people from different generations, backgrounds and experiences. And it doesn’t normally exceed more than sort of eight or 10 members, but again, depending on the size of the family that can adapt to suit whatever it is that you would want it to, to do.
There is a much larger forum available, which I will talk about in next week’s show, which is called a family assembly or a family meeting, or a family gathering. With all these things with family business, they tend to have lots of different names, all preceded by the word ‘family’, so that it’s an assembly, a mutual gathering of, typically the whole of the family.
and the council and the assembly tend to interact quite closely with each other. So I’ll explain that a little bit more in next week’s show. and I think that highlights an important point actually, that it’s important to remember the governance tools that we’re talking about in the series on governance.
They operate and interact with each other. They’re not standalone things. So you don’t just go ahead and say, right. “let’s have a family charter”. Put that in a drawer. Thanks very much. You then have the, forums and, communication. Methods that allow you to make sure that what you’ve put in the family charter is then lived through the business and the family and the family council is one such forum.
The charter itself, which we covered in last week, shows. If you haven’t listened to the episode on family charters, once you finish this one, pop back and have a listen to last week’s, but the family charter will help to guide an outline. The role of the family council and the aim of the family council is to improve the communication between the family and the business.
That’s important to remember. This is not the same as a board of directors. The board of directors are there to manage and operate the family business. However, the family council is more aligned to managing the business family, if that makes sense. So it’s an advisory and consultative body, not one that makes decisions.
So the role of the family council is not one that forms an illegally binding structure and it doesn’t have powers to vote on board matters or any other meeting of the business. And although there is communication between the board and the family council, the family council doesn’t set the strategy for the business.
That again, is a responsibility that lies with the board of directors.
But the benefit of having a family council in place is that there is this communication forum, this bridge between the family and the board of directors that allows the board of directors to take on the views of the wider family. So they’re not just running off rough shod and doing their own thing.
They are being kept, relatively, in line by the fact that there’s a communication forum between the family and the business. Another way of thinking of it is the family council is the ambassador of the family to the board of directors.
In our view, family councils are normally required. When you get to a size of, say, 10 family members, now some people would suggest this is too low, and if your family is particularly good at communicating with each other, you may want to wait until there’s a far higher number of family members before you start looking at a family council.
But it better, as I’ve said, I’m along over the last few episodes. It’s better to design a governance structure that the business can grow into rather than stick with what’s there now and soon outgrow and require this to be done, a separate date.
So that gives you an idea of what sort of size of family business you need to be, before you start really considering family councils. so if you’re putting a family charter in place and you’re not yet of sufficient size to justify a family council in, in your view, what you might want to do within that family charter is document.
At what stage do we want to start bringing in a family council to help the communication between family branches and, the business. so that’s comfortable.
What are the advantages of a Family Council?
That is what, why would you want one? as with most things that the primary driver for something like this is to help encourage. Communication and the family council is a really useful communication mechanism that allows for the policy strategies and decisions that are being made by the board to be explained and discussed within the family council.
So as I say, the family council can’t overrule the board, but it can often be the case that policies and decisions that have been communicated and discussed and tatted through can be revised or amended. Following those discussions. So having the views of both sides of the family and the business and having that bridge between them in the family council means that these, there’s not these little frustrations and niggles that are building up around decisions that the board are making because it’s all been communicated in a very open fashion.
In terms of the communication. Its two ways so the family can communicate to the board via. The family council, but the board can also communicate with the family, through it as well. And so what the board might decide is that if there’s information around the financial position or the operation of the business, that it’s really impractical to communicate via the whole family.
And it’s not the most efficient way to do it. It may be that they want to do that via a family council so that the members of the family council can then go and disseminate that information to the rest of the family. Again, normally via a family meeting or family assembly,
So what that allows the family council to do is pass on those key elements of information about direction to the business, to the wider family, and gather their views on whether the family feel that this is the best way for the business to be operating. And then again, reporting that back into the, council meeting that the F the family council will be having with the board .
Each member of the family council will usually be charged with gathering feedback from their family group on a whole range of issues. So what this does, again, is ensure that everyone in the family has a voice, is able to be heard, but in a way that is practical and efficient from a communication perspective.
So as a family, business grows in number and complexity, rather than having the board sit and listen to every single person within that. family. If the family council are able to gather those views and bring them to a forum where the topic of discussion is the interaction between the family and a business, then it makes a lot of sense to be able to do that.
And that’s one of the big advantages of the family council. if the wider family wants to know more about how the business is being run, they would typically communicate this via the family council. And again, I’ll keep banging this drum over and over again. The benefit of good governance is that communication improves.
And if that’s the case, then it’s likely to help avoid future tensions and future pitfalls that can come from poor communication.
Some of the other responsibilities that can be given to the family council include things like organising family assemblies, gatherings, not just in terms of actually organising it and getting people there, but also outlining what the content of these meetings. Ah, they would often take responsibility for things like the education programs for the next gen, and any philanthropic activities that the family wants to pursue.
And again, a lot of that is outlined and detailed in the family charter. So sort of summarising on that within the family charter that the family would get together and have discussions about their vision, their values, the purpose of the business, what they wanted to do and achieve for the family. And then a board of directors is there to run the business.
The family council is that bridge between the board of directors and the family to help communicate the views of that family and to put into practice the really important stuff that’s been covered in the family charter.
How do you start putting a Family Council in place?
So how would you get started on putting in place a family council? all things go back to the family charter.
so typically you would outline the process for choosing members of the family council within those discussions on the family charter. And as I mentioned earlier, getting a good mix of ages and experiences, important to ensure a good level of representation. of different perspectives. So rather than have it as all senior generation and, no sort of younger, representation, you’re only going to get one real perspective on it from a generational perspective.
So having different generations, different levels of experience, on there, sometimes having somebody. On the council doesn’t necessarily have a huge amount of business knowledge. They can ask the questions that those with business owners might not be asking it. It’s, you know, no such thing as a stupid question kind of time because it is going to impact that person.
And so if they’ve got a question to ask it, it’s a relevant question. one thing you might want to be wary of is if you’re a smaller family business, but you want to put a family council in place, it may be that you have a smaller pool of people to choose from. And given that. Some of the people that you might want on the family council might hold other significant roles within the business.
So for example, they could be a member of the board, they could be a major shareholder, or they might be the managing director of the business, for example. And it’s important to recognise it. If that’s the case, having that kind of structure on a family council might create conflict. Because the council is there to serve a separate role to the board.
So if the council is made up of 50% of the board, is it really going to be effective in communicating to the board what the views of the family are? And so I just just be careful of that, that there can be some duplication. It may be inevitable that there’s some duplication in terms of, of roles, depending on the size and structure of the business.
But ideally you would want that to be avoided. Another thing to be wary of is if your family is made up of lots of different branches, so it’s perhaps gone to the third or fourth generation, there’s lots of different branches of that family. The temptation might be just to ensure that every branch of that family is represented on the family council and on the face of it, this would seem really sensible.
And it would tend to avoid, for example, circumstances where you have one branch that is a significant shareholder, maybe two or three other branches that have a smaller, shareholding. But the views of those people are obviously still very important. Having a representative from each branch on the family council can help to solve that issue.
However. What you also need to be wary of is the branch mentality as a viewpoint is almost a little bit outdated and could potentially be counterproductive. Now, what I mean by this is a lot of tensions within family business can actually be traced back to this brunch mentality. I. E. that member of the family did this, therefore all of them must be out to get us and that kind of stuff.
And perhaps a more appropriate way forward is to use things like the family assembly, which we’re going to discuss next week show. And the. use of a family charter to gain a whole family viewpoint. Iron out those views and those issues at an earlier stage. And then from the Paul of family that you have to put somebody on the family council.
You look to seek out the people who had the most ability, enthusiasm, and desire to actually fulfill the role on the family council. Cause it’s a really important role. So just having a representative from one branch of the family on there. And they might not be the most effective or impactful person to have on that is going to be counter productive.
If your family business is particularly large, you might have individual members of the family council also representing subcommittees. So you might have a committee that is focused on education. For example, you’d have a representative from the family council that kind of heads up that subcommittee, but then you bring in other people from the family, Paul, to help with.
The delivery of any education programs you might want for next generation. same could be said for philanthropy. I really struggled saying that word. I wish there was an easier word for philanthropy. I think my tone twisted on that an awful lot, and it seems that it’s, it’s coming up more and more in these episodes.
So, maybe I need to try and find a different word for that, but in the meantime, bear with me on my plan pronunciation of philanthropy. I’ll work on it in my spare time. but yeah, you might have subcommittees that are looking at, certain things such as that social impact and other ones. family employment processes and procedures might be designated to a, a committee.
So there’s lots of things that you can build out from the family council, again, to help deliver the things that have been agreed as being really important. to the family. And that’s why it’s important to get the makeup of the family council. Right. And perhaps the most important role on that family council is the chair of the council.
Now, most of the communication between the family council and the board will be done through its respective chairs. So the chair of the family council needs to be able to have good communication skills with the chair of the board. In addition, they will probably need to have quite good diplomacy skills because they’re kind of caught in the middle there.
The, sort of go between, between the board of directors and the wider family group, and it can quite often be, we know the phrase, don’t shoot the messenger. And if they are communicating certain things that perhaps don’t go down well at a family meeting, they’re going to bare the brunt of, that kickback.
And likewise, if they represent a view from the family that the board don’t agree with, they’re going to bear the brunt of that. So they need to be good diplomat with good communication skills, and they probably need to possess a, a bit of business acumen as well. They need to be able to understand what it is the board.
Is trying to do what it’s trying to achieve. and so that, that’s part of the sort of skill set that you’d be looking for within the chair. And what you’re really trying to do is give that person the best possible opportunity to succeed in that role. So rather than sending someone else someone up for a fall and making it really difficult for them by putting them in a role that either they’re not comfortable with or they don’t possess the skills to do well, choosing the person with the best skillset is going to make the family council effective and everything.
Obviously that comes with that being the case. Given the importance of this role, choosing your chair should be something that you take time and care over and perhaps having a process by which if somebody represents, or wants to represent the family as the chair of the family council, but doesn’t necessarily possess all of the skills that you would want, that you help them to go onto training courses.
To fill those gaps so that again, they have the best opportunity to succeed in that role. Good governance is not about necessarily trying to pick holes in various different elements of the business or all the family there is to try and create a smooth communication path for everything that goes on within the family and the business.
So you want this to succeed. You want it to be a good thing. You want it to be something that is. Impactful, and so making sure you put people on there that are going to be able to do that is a really, really good thing to do. That being said, another important thing to consider with your family council is how often it is deemed suitable to replace or rotate members on that council.
There’s probably not going to be a good idea to just say you’ve got 12 months and then off you, you know, you’ve got to bring someone else in, but also you don’t want someone there necessarily for 15 or 20 years. Because it can become a bit stale and the viewpoints and the relationship with the board, may not be as, challenging as it needs to be in order to represent the views of the family.
So typical best practices around two to five years, you would put something in place that’s suited to your family. You may decide again by the family charter that, reelection is possible. So somebody has done their five years as an example. but they’re able to be reelected again. They can do so, but maybe only once, or you may think, actually, no, we don’t want that to be something that is there for more than five years.
Therefore, someone else needs to come in and sit in that role, after that. so the important thing is to make the family council appropriate to what you’re trying to achieve as a family and as a business. And those are some of the tips that I would give in terms of putting that family council together. . So in summary, the family council is the bridge between the family and the board.
They help to communicate the views of the board in relation to the overall strategic direction of the business to the family. Who will hopefully, via the means of the discussions around a family charter, we’ll have outlined what the purpose of that business is. So the family council is kind of, ensuring that both the family and the business are operating in the most efficient and, coherent way with the viewpoints of, of everybody included on that.
The reason they’re so useful is they help create really good communication, which as I’ve said, and I will continue to say, because it is really, really important, communication is the key. Having good communication. The right people talking at the right time about the right things is only likely to be beneficial to the business and the family council is kind of fundamental to that.
If you’ve outlined something in your discussions around the family charter and you don’t have a mechanism for delivering and providing accountability on that, then it’s kind of lessened the impact that the family charter can have. So it’s a really, really important, function and communication forum.
And it provides liaison between. The business and the wider family group. Again, next week we’re going to cover family assemblies in much more detail, but they would generally be meetings of everybody within the family. Some restricts to adults, only, some don’t. But the, the family meetings and family gatherings where all of this stuff is communicated is generally chaired by the Family council.
So it is a really, really important role. And the best way to get started is to include discussions about this in those discussions around a family charter. So now you understand what a family council can do when you’re having those discussions about what the family council’s role is and who it should be represented by, et cetera, et cetera.
that can form part of the family charter going forward. and,
as ever. I would recommend that. these types of meetings are facilitated. Now. You’d imagine. I would say that because that’s what I do for a job. but it creates this subjectivity that means that nothing’s missed. It means that it’s, less emotive decisions and much more practical in terms of who and why people will sit on a family council.
And it needs to be somebody who is experienced in doing this kind of thing. So that gives you an overview of the family council as I hope you appreciate. We are building, throughout this series that the overall family governance structure, it’s pretty impossible to cover everything in one episode. So I couldn’t have done one episode on family governance cause I’d be banging on about this stuff for about two and a half hours.
In one go. but by breaking it down into the individual constituent path, what I’ll do at the end of this series is summarise everything we’ve learned and how all of this interlinks and operates as a family governance system and the overall benefit of that to the business. So I hope that’s been useful.
And until next time, take care.