The caller told me that in her family, they have a family meeting every six months. I asked who is invited to the meeting: “All of the family members who own stock” she said. Spouses? “Nope.” Siblings who don’t work at the business? “No”. Adult children in the next generation in college? “Of course not.”
Another (and more descriptive) name for these gatherings would be a shareholder meeting. Why does it matter? To my thinking, excluding spouses, the next generation or any siblings (not working in the business) from a family meeting runs the risk of communicating ‘You’re not a part of the family.’
Eckrich and McClure’s book The Family Council Handbook does a nice job of differentiating among all the many different sorts of meetings
The work associated with being a member of your Family Council is significant. You are representing the larger family, and committing to work with the leadership group as they develop and implement specific initiatives. Family Council work is often meaningful and rewarding. At the same time, it can feel burdensome, tedious and thankless. Family Council members do not always get much reinforcement for their work, and it is not uncommon for Council members to reach a burnout stage during their tenure on the Council. There are a few things to keep in mind that might help manage potential burnout:
Develop a plan for the next one to three years that maps out overarching objectives and specific initiatives for the Council;
Work to develop a set of actions that you can actually achieve, with the limited resources (typically human resources) you have available;
Be sure to engage with and manage your Family Office resources optimally;
Do no hesitate to selectively reach out to family members not on the Council to provide their expertise and support for specific projects;
Ensure that Council members communicate regularly on progress, and instill some accountability measures for follow-through responsibilities ongoing.
These are just a few suggestions for Family Council members to consider as they navigate the diverse and expansive responsibilities of a critical governing body.
It was the best of times, and then it was the worst of times for the second-generation family owners of a flourishing gardening business. Sisters Amy and Bethany, members of the third generation, were bright, talented women who were active in the newly formed family council, though neither worked in the operation.
Amy served admirably as the first chairman of the seven-member family council composed of her sister Bethany, her uncle, her aunt, her brother, and two cousins. Amy seemed to be a born leader. She had done a lot of the research and initial legwork to get the family council started and launched. Thanks to her efforts the family formed an active family council, and the family agreed that these were some of the best of times for them.
After Amy served her two-year term as chairman, her sister Bethany took over. Also bright and well organized, Bethany seemed like the perfect successor. After a year, though, the family council was not performing nearly as well as it had under Amy’s leadership. Council members weren’t showing up, meetings did not run as smoothly, and everyone noticed there was a real lack of camaraderie. Family members wondered if having good governance was really worth the time, effort, and expense.
The best of times and the worst of times boiled down to one significant difference: the leadership styles of Amy and Bethany. Amy understood the importance of building relationships, and Bethany did not. At the beginning of each month, Amy would look at her busy calendar and decide what day she was going to take her dad and her aunt to lunch. Since they were the owners of their family’s growing gardening business, she knew how important it was to stay close to them. She would also schedule calls to her siblings and cousins – making a point to find out what pressing issues she should have on the family council agenda so all topics could be addressed. She knew that staying in touch with the entire family and continuing to build those relationships was critical to the success of the family and the business.
Bethany had not realized the organizational and personal skills it took to make the council run smoothly. She was, however, smart enough to seek her sister’s advice. Amy explained to Bethany how imperative it is for family leaders to stay in close contact with everyone in their family system.. Amy said her strategy was to organize her calendar on the first day of each month because scheduling time for relationship building should always be done first. No one wanted to miss one of Amy’s meetings because the topics were always on target, and everyone was fully engaged.
Staying in contact with the members of the family council did not come easily to Bethany, but she became increasingly aware of how the little things she did to stay in touch paid big dividends in the cohesiveness of the council and the effectiveness of the family governance. Bethany learned from Amy that it is the investment of time that makes for the best of times when it comes to working successfully with your family.
In a recent study of large successful family businesses, I noticed an interesting trend. Families businesses that have spent generations discouraging family members from entering the business are now developing programs to pull them back into the fold. They have learned that in their efforts to ensure that only the most qualified members of the family entered the business, they have discouraged family interest in the business.
While businesses only become old and successful by having strong management, family businesses also need to maintain owners’ interest and engagement in the business in order to survive as a family owned entity. So, many of our study participants are putting in place orientation programs for next generation family members to help them learn about the business and increase the chance that the most qualified will elect to join. Regardless of whether the family members join, the business benefits from well-educated owners who appreciate the business and may one day take on important responsibilities on the board of directors or family council.
One family pays its Family Council President a salary comparable to that of the company President and CEO. The underlying theory is that both roles are equally important to the successful continuity of the family enterprise.
Another family has a young cousin that spends 20 hours/week on family council matters, but will not accept a salary. Her perspective is that she is not working actively in the business, but gains tremendous financial rewards from the business. She sees her participation in the Family Council as a way of ‘earning’ those financial benefits.
In another case, a family with a California-based retail business began paying Family Council members a small salary after years of intensive, unpaid work on family council activities. Instead of having a positive result, this practice led to widespread bad feelings. Family members that had worked on family council activities in the past – with no compensation – felt unfairly treated. If the current family council really cared, they reasoned, they wouldn’t accept any financial compensation for this service. Tensions in the family were heightened until the practice was discontinued.
So, once again, we are faced with a situation that has no clear ‘right’ answer. Paying a salary for Family Governance service is an individual decision, and each family will approach it differently.
It would be fascinating to hear your experiences on this matter – what is working for you?
A large family business in the Midwest with an active – and highly effective – Family Council has been struggling recently with two nagging questions:
Should the bulk of Family Council work be done by one designated leader, or should it be spread out among committees and committee chairs?
Should we pay Family Council leaders and committee members for their time and efforts? If so – how much pay is reasonable?
Clearly, on the first question, a ‘both/and’ approach is desired, but not always easy to accomplish.
One strong, designated leader provides efficiency and clear accountability, but can also lead to a de-motivated and disconnected family. Relying too much on one person for a long period of time may lead to their burnout, with no prepared successor. Others in the family may not fully develop their leadership abilities or have the pleasure of serving as leader.
On the other hand, an active group of committee members and committee chairs provides a wider family connection and fosters family passion and commitment, but can take a lot more time to get things accomplished. It’s hard to hold a group accountable for results, and the Family Council can bog down in the face of multiple, often diverging approaches and opinions.
This paradox – the need for both “Strong Centralized Leader and Strong Dispersed Group” – is probably very familiar to you. Although at first the two appear to be mutually exclusive, upon closer examination we can see that they actually support each other. A strong individual leader will foster strength in committees, and strong committees create conditions for strong individual leadership.
Have you faced this common tension – and if so, what has been your experience?
We’ll talk about Family Council compensation later this week… stay tuned.
This week I’ll be speaking to a group of family business owners in the Milwaukee area, and the topic they chose was “Governance”. When they requested that topic, first I felt excitement – but it was soon followed by a bit of dread.
I felt excited because governance is such an essential component in family enterprise strength and continuity. I also felt dread because, even after years of helping families reap the benefits of governance structures like Family Councils and Boards of Directors, I still find it difficult to come up with a simple, clear definition of governance.
Like most people, my mind immediately seizes upon Boards of Directors as the prime example of governance. Indeed, a web search on the term ‘governance’ quickly yielded the following:
That relatively simple (!) definition may work for public companies, but, the complexities of family enterprise can require more of a multi-faceted approach to governance.
For example, as families become larger and more complex, they also appreciate the benefits of more formal family governance, most often in the form of a Family Council.
Families that pursue their own foundations and other philanthropic efforts come to appreciate the benefits of strong governance in the form of Foundation Boards.
As families move into the cousin stage – and beyond – they seek governance structures to serve their larger, more dispersed ownership group. Often called Ownership Councils, these bodies provide a structure for balanced participation and oversight on behalf of shareholders.
Families with Family Offices also find significant benefits from the oversight and expertise of an objective governance group of some kind.
Given all this complexity – what’s a good, simple definition of family business governance? To inspire you, I will go out on a limb and offer my own working definition – as follows:
Family enterprise governance provides an established set of systems and structures that ensure sound and fair actions and decisions, often by a small number of well-qualified people on behalf of a larger number of stakeholders.
I know this definition has plenty of room for improvement – what’s missing? What’s your current working definition of ‘family enterprise governance’ – and how does it help you get the results you seek?