All posts by Stephen L. McClure, Ph.D.

How one family got started with family education

Steve McClure
Steve McClure

When a large family was moving into its fifth generation of adults, their Family Council knew it was time to invest in future shareholder development.

The family had 20 fifth-generation future owners and beneficiaries who ranged in age from 14 to 39 (plus several more who were younger) and were geographically dispersed. There were also a few members in that same age range from the fourth generation. Some relatives had worked for the company in summer jobs, but most had not. Some attended shareholder meetings and many did not.

Faced with these challenges, the Council asked themselves: “How do you educate the family, and on what?”

They agreed to form an Owner Development Committee consisting of five fifth-generation members and one fourth-generation member. The mission was to research and design their own education program. Over the course of nine months, the committee organized their recommendations into four segments:

1) What should we do together? Seeing as some family members barely knew their cousins, the committee recognized that teamwork development was necessary to become a unified shareholder group. They decided to set aside one day prior to the annual shareholders’ meeting to conduct group programs. In turn, this would naturally increase attendance for the shareholder meetings. Programs would be oriented toward the whole group, but the day would also have three breakout sessions with age-appropriate content aimed (1) at the teens, (2) the college-aged group and (3) the older cousins. Programming would include tours, management presentations and education about the company. There would also be projects, plans and decisions requiring collaboration, leadership, organization and accountability. By learning and accomplishing projects together, they reasoned that teamwork would develop as they achieved their desired educational goals.

2) What body of knowledge and skills do we need to master? The committee identified subject areas based on their research drawn from attending family business seminars, speaking with other business families and reading related materials. Skill and knowledge areas included financial statements, investing, communication and negotiating skills, knowledge of their business and industry, family values and history, business strategy, and an understanding of the role of the board, shareholders, family governance and management.

3) What education should we provide and what should individuals learn on their own?  Next, the committee defined what individuals are expected to learn on their own (primarily from books, articles and seminars), what will be provided to the group (customized programs presented by other business families, speakers and trainers), or made available to attend (seminars, courses and training programs). For the seminars and other resources, they established rules and procedures to address education costs and set expectations about expenses covered by family members.

 4) How do we implement?  Understanding that implementing all the educational initiatives at once would be overwhelming, they designed a multi-year, roll out strategy. The first step was introducing the one day, pre-shareholder meeting to inform everybody of the curriculum and obtain buy-in.

The committee presented their recommendations to the Family Council, and then to the entire family at a family assembly meeting where they received unanimous support.

The family council dream team

Steve McClure
Steve McClure

In my family, we don’t wait for the basketball madness to start in March.

Last weekend, we watched the NBA all-star game and three-point shooting contest. Next week, my youngest son starts his high school basketball post-season playoffs. And next month during his spring break, we are taking a trip scheduled around a particular NBA game. Needless to say, at home we are talking a lot about players, teams and teamwork.

I don’t talk to my family much about Family Council teamwork, but I think about it a lot and see it firsthand every week.  Like a basketball team, the best Family Councils are teams with the right skills and attitudes.  Larger families with many choices have the luxury of selecting their best talent.  Business families who include spouses as candidates for the Family Council expand their talent pool.

When assembling the Family Council dream team, pick at least one who can be the Chair to galvanize and manage the team. He or she communicates well, facilitates, never bosses -yet can be directive when needed – and is great with follow up so that individuals are accountable. This team manager is the kind of person who can make a good idea seem like everyone’s and can tell the truth about what’s going on without an uncomfortable confrontation.

The chair is joined by some great teammates, all of whom:

  • Get things done by keeping conference call appointments and taking responsibility for Family Council tasks/projects without over-committing.
  • Can be flexible and adaptable about the family’s changing needs, yet be rigidly firm on values.
  • Understand the differences between the roles of shareholder, board, management and family and can respect the boundaries.
  • Have the spunk to decide what is right, rather than siding with an individual or family group (especially their own).
  • Are capable of working with differences among individuals, branches and generations.
  • Can inform, listen, respect and build trusting relationships across family branches.
  • Have the diplomacy to keep their mouth shut about sensitive matters but love to blab with the best of them on everything else the Family Council is doing.
  • Can respect, support and help the Chair accomplish the difficult, underpaid, cat-herding job – instead of pushing the buttons of their courageous brother, cousin, aunt, uncle, niece, nephew, father, mother or sister who agreed to do it.

Anything missing?  What talents do you value on a Family Council?

Communication and the family council

Steve McClure
Steve McClure

“What is the dividing line between what goes on in a Family Council meeting and what gets shared with family members?” This was the question recently asked by a Family Council Chair.

He was getting criticism from some in the family for not sharing enough, and at the same time cautioned against sharing too much by those on the Family Council. Further, the Chair relied upon selected members of the senior generation to get advice on tricky matters; so some selected family members were privy to more details than others. The Family Council communication protocol was murky and the Chairman worried about getting caught taking advice some might see as biased.

In our experience there are no hard and fast rules for communications that work for every Family Council and the constituent families they serve. Each family has a culture which helps determine communications, privacy and transparency practices. That said, rules that have worked for more than a few are the following guidelines for Family Council communications:

  • Assume all discussions throughout a meeting are private and will not be shared with anyone – then, at the end of the meeting everyone will participate to agree and decide what will be communicated, how, by whom and when (also, even if an individual disagrees with what the Family Council decides to communicate, each individual will support the group decision);
  • When getting advice from specific family members (e.g., mentoring advice and seeking wisdom) it is not necessary to report such to the Family Council or to the family. Family Council members and the Family Council Chair should be free to consult whomever they wish without restrictions. However, in keeping with each Family Council members’ role of representing the whole family, we all agree we will try to balance solicited input by listening to the views of those known to have alternative perspectives;
  • Topics that are controversial and do not yet have conclusions or closure will not be communicated to the family without full Family Council consensus on what to communicate, how, by whom and when;
  • It is never okay to tell anyone outside a Family Council meeting who said what in a meeting; and,
  • If a family member outside the Family Council is asking for information that makes a member uncomfortable because there are no guidelines to cover it, Family Council members will get the topic on the Family Council agenda so guidelines can be established before proceeding. In some cases, it may be sufficient to get an interpretation from the Family Council Chair.

Developing written communications guidelines, which can be shared with all family members, is a good idea and works for many. Those who use written guidelines appreciate that they allow the Family Council to be proactive rather than reactive, and allow all family members knowledge about what to expect.

A dialogue on the role of the family council

Steve McClure
Steve McClure

At a recent family meeting of more than fifty shareholders, spouses and future shareholders, an 18 year old asked a question during the Family Council Chairman’s report: “How did you set the priorities of what you worked on during the last year?”

It was a great question and the Chairman was on his game with the answer – it allowed him to remind the family how communication and decision making is supposed to work between multiple family members and a five person Family Council. He said, answering for the Family Council, “We purposely approached family members outside our own family branches and asked each individual what they thought was most important. Then we compared notes in a Family Council meeting and decided as a group for the family.”

A follow-up question quickly emerged, “Why didn’t you let us all vote on the priorities?”

Again, the Chairman, “We view our responsibility to the entire family, as elected representatives, to listen well and then make decisions and plans on behalf of the family. We carefully try to not overstep our authority by bringing our decisions and recommended policy to a vote by the entire family when appropriate. Yet, we must be productive too. Thus, we thought it best to proceed as we did.”

In this case, the Chairman could also refer to the qualifications of Family Council members which were written. One qualification is that individuals must be able to understand the family culture well enough to know when to act as a representative and make informed decisions and when to invite the entire family’s input on a decision.

A Competitive Family and Families with Competition

Steve McClure
Steve McClure

With the Steelers in the Super Bowl again, there is more than the usual focus on the team’s owners; the Rooney family.  The newspapers place an emphasis on the family’s history and family business legacy behind the success of this storied football team.

Reflecting on sports competition and business families, we are reminded every day of competition within the families themselves, especially the competition that takes place between siblings.  Siblings may compete for:

  • Opportunities for jobs in the business and associated recognition for individual success;
  • Access to the family homes/ranches/cabins/boats for themselves and/or their children; and
  • Recognition of the value of their contributions in educational achievement, community or business performance, or for leading a family council.

Even when the competition is managed well by the brothers and sisters or restrained by respect for the most important issues, there may still be score keeping. 

Friendly competition is a part of life with siblings, and it is more a “normal characteristic of the family culture” than a problem for many successful business families.  In a football game, the rules are well known and understood, there are objective decision makers (the referees), and there is transparency (national television).  These are also fundamentals needed in business families even when the competition is not so fierce.

Successful business families have well-understood policies for how the family relates to the business (the rules), use objectivity (independent directors and non-family managers), and find multiple ways to keep everyone informed (transparency).  Also, from time to time, they bring up the fact that they are all now in their 50s and they still do things that look like they might be competing for their parents’ attention and favor – then they have a good laugh together at their own expense.

The Lead Independent Director

Steve McClure
Steve McClure

The lead independent director role emerged in US public companies after legislation responded to flagrant mismanagement within the former Enron Corporation.  The Sarbanes-Oxley Act requires that independent directors meet apart from those who are not independent.  The lead independent director serves as chair in such meetings.  The role and separate meeting process is particularly valuable for balancing the interests of the shareholders and management when the company CEO is also the Chair of the Board.

Legislation is not a factor, yet we see lead independent directors emerge in private family companies. Independent directors on family business boards balance not just the interests of shareholders and management, but also the interests of different family branches, and the board and family or non-family management.  It’s much more complicated in a family business and often hard to be clear about what is going on between family members.  A lead independent director can help the other independents coordinate with each other, navigate the family politics and assemble to compare their perspectives when needed, separate from the rest of the board.  The lead independent will coordinate and serve as the spokesperson when there is value in communicating a single message from the independents to the family.

In that many family CEOs transition to the role of Chair of the Board as a natural progression toward retirement, there is another opportunity for lead independent directors.   By playing an active and visible role during agenda creation and by facilitating sensitive board discussions, lead independent directors can serve the business and family by maintaining real and perceived fair representation from all factions, and thus promote trust within the family.  Savvy family member Board Chairs promote these benefits when they willingly share some of their traditional duties with a lead independent director.  Savvy lead independent directors assist the family Chair without ever sacrificing their real or perceived independence from the Chair.

The lead independent role tends to informally emerge within family company boards, yet it may also occur by design when particular leadership qualities are sought during independent director recruitment.

Another Invited Accountability Example

Steve McClure
Steve McClure

In a previous post, I defined invited accountability in the context of operating and non-operating shareholders.  Another opportunity for family members to invite accountability is in the situation where a founder passes control to a lead successor with voting stock. 

 There is a middle son of a family business founder that has been named the successor to his father, and there are six other siblings.  The father feels the middle son is the best successor choice because he is an engineer and it is an engineering firm, he has the proper education, and has worked hard to be qualified.  The father, not wanting his other children to weaken business leadership also gives this son the voting stock…control is in his hands as the single most powerful shareholder.  The other siblings, being siblings, are resentful.  Getting no explanation from the father, they snipe, criticize, form coalitions and try to catch their brother making mistakes so that they can prove that he is not better than they, as their father has apparently decided. 

Now, this lead sibling can decide to say, it doesn’t matter, I have the voting stock and can do what I want, even if there is an outside board and family council.

However, this lead sibling can also decide to invite accountability, even though there is nothing to force him to do so.  He can say to his brothers and sisters, I will share my thinking with you about the direction of the business and the hard choices we must make to change and adjust the business to market forces.  And, we will have a discussion and open debate about my thinking in our family council and in our board room where I will listen and be influenced by you.  I will do my best to try to convince you of the merits of my thinking, prepare you with information and when relevant, offer my decisions and rationale up for your scrutiny.  In the end, I will not offer up my voting stock to you, but I will act as closely as possible as if we all shared the voting stock equally.

The other siblings may also choose to invite accountability.  In exchange for their brother’s promise, they may offer their own.  They may say, we will behave in ways that are respectful to you and not go behind your back to form coalitions, snipe at you, or criticize you to others or among ourselves.  We will not be resentful or angry at the father for his choice of you as the successor.  We will promise these things to each other and we will invite you and each other to challenge any one of us that violates these promises.  In other words, we will invite accountability.

Of course their reasoning for doing so is to secure a stronger family, an aligned team of shareholders, and the resultant competitive advantage.

Invited Accountability

Steve McClure
Steve McClure

Business families with “accountability issues” often describe them in two ways.  The shareholders who do not work in the business, whether actual shareholders or family members in line to inherit, will see it one way:

My relative running the company is not accountable to the rest of the family.

The interpretation from those involved in operations of the business see it another way:

My relatives are trying to impose accountability and they do not have the background or experience to do so.

While there may be cases of individuals who just don’t want to be held accountable period, generally speaking, family managers are resistant to being held accountable by “ill-equipped” family members.  Resistance is also emotional, as family shareholders who want to impose accountability are seen as ungrateful for the care, sacrifice and achieved business results of the past.  The idea of accountability is not resisted; in fact, they feel they already are being accountable.  Shareholders don’t want to take it on faith however, they want proof.  However, it is very difficult for even the most qualified family member to hold another family member accountable.

Business families who break through this impasse, or avoid it altogether, do it by utilizing objectivity; in the form of a wise, universally trusted advisor or senior manager who can interpret and build receptiveness in family-to-family communication.  One we know is quoted regularly by all as saying, “There is management’s view and there is the shareholder group’s view, and then there is the right way to do it.”  Or, objectivity comes from strong, universally trusted independent directors making use of formal board procedures and appropriate involvement of management and shareholders.  Whatever the form, business leaders are more likely to welcome accountability when individuals are involved who are unbiased and understand business.

It is difficult for a family group of shareholders to establish the objective resource they need; they are loosely organized and their motivations may be suspect no matter how open and transparent their methods.  Management is better equipped due to access to organizational and financial resources.  However, if they don’t actively involve family shareholders in an open and transparent process they will not have full trust either. 

When family managers lead in resolving the accountability issue, and do it well, they demonstrate a sincere form of invited accountability.

Avoiding the “Family Box”

by Chris Eckrich & Steve McClure

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Chris Eckrich
Chris Eckrich
Steve McClure
Steve McClure

The November article is titled, Building the Best Team Possible: Relationships between Family and Non-Family Employees.  Just as important are the relationships between non-family employees and family members who do not work in the company.  Recently, we heard the following comment from family shareholder about the non-family management team.

“I feel like they want me to just be a figurehead, like the face in the black framed motivational picture with the bold print; Inheritor.  Our professional managers show polite interest in my suggestions about the business, and will point out a little too directly for my comfort; your family hired us to manage.  I feel like they want me to stay in a box; the family box.”

InheritorsIt is not hard to understand non-family management wanting to keep the family in a box, if there has been a history of meddling or politics in the business resulting from family disputes.  If they feel family dynamics are playing out too much, is easier just to concentrate on “business” and do everything possible to make sure “family” is handled elsewhere.  Yet, what about the family shareholder who wants to make a valued and appropriate contribution and is just a little awkward and inexperienced about it?

Family shareholders need to learn all they can about how to exert their influence on a business in an appropriate way… and it is the responsibility of a family to teach its members.  Even so, those who are new to it will understandably make mistakes.   We find it is a two-way street.  The family will benefit greatly from non-family managers who are interested, are willing to learn and engage the family to maximize the family’s contribution to the business.  If they expect the family to know how best to be an active family shareholder, and resort to only telling them how they are getting it wrong, a contest will develop.

If both management and the family are earnestly working toward maximizing the competitive advantage of family ownership by adopting an open to learning, trial and error approach, they will invent procedures for communication and interaction that will fit their unique needs.  There’s not one way to do it; visits from senior non-family managers to the Family Council may work for one family, and be completely inappropriate for another.  Accepting that mistakes are okay, and that constructive feedback is okay too, the family shareholders and management will evolve and get it right.  By working together, they can keep “family influence” alive in the business, even if the family is not in the management ranks.