About the Author
STEPHEN L. MCCLURE Principalat the Family Business Consulting Group, Inc. and specializes in family communications and decision making, succession planning and implementation, and governance & management in family firms.
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The Family Council Handbook
How to Create, Run, and Maintain a Successful Family Business Council
By Christopher J. Eckrich, Stephen L. McClure
Palgrave MacmillanCopyright © 2012 Christopher J. Eckrich and Stephen L. McClure
All rights reserved.
Family Organization and Governance for Sustaining the Family Business: A Field Manual
"It was decided that a family council will be established for the purpose of conducting regular family business meetings. The family council will involve all family members above the age of 15. The purpose of family council meetings will be to educate and facilitate communication between family members and to provide a forum for constructive discussion, problem solving and decisions about the family as it relates to Sullivan Industrial Products as well as the business as it relates to the family. The forum is being established now as it will be vital to our preparation and implementation of the handoff of the business from the brothers' generation to their children, the cousins. We will refer to these meetings as the Sullivan Family Council, and it will meet quarterly; each meeting will begin promptly at 2:00 p.m. on the third Thursday of the month that begins a new quarter. The meetings will end promptly at 5:00 p.m., unless it is agreed to extend them to finish discussing an agenda item. Each meeting will be followed by dinner or some other family event that will allow us to have fun together. The family council and dinner host duties will rotate among adult members, as will the various jobs/roles needed to run the meetings efficiently and effectively. The family council will follow an agenda, to which each family member may contribute in advance; a final version of this agenda will be distributed to each participant at least one week prior to the meeting. Meeting notes will be recorded and provided to all."
Why Have a Family Council?
A family business is different from other businesses. Businesses controlled by stockholders not related to one another do not have the relationship advantages available to a family business. That is why public companies around the world are trying to create what family businesses already have, namely, a strong sense of commitment that comes from genuinely caring about each other, about customers, and about what the business is doing. Public companies recognize their problems:
Most major capital decisions in a business are based on or heavily influenced by the impact they will have on shareholders' quarterly returns.
The company's values change as the senior management team changes.
Service quality and employee loyalty are inconsistent, depending mainly on the strength of programs and policies, rather than coming from genuine mutual respect and relationships between the owners and the employees of a business.
With this in mind, there are four reasons why family businesses should utilize a family council to take advantage of their unique opportunities.
Maximizing natural advantages. Family businesses can and already do a better job than publicly owned corporations do. Their greatest advantage is that they are family owned. Families usually already have the following values: integrity, concern about their image and their community, caring about their employees, willingness to delay gratification for the sake of long-term returns, concern about opportunities for their children, responsiveness to others' needs, and commitment to keeping their promises. These kinds of values are what the management consultants and senior managers in publicly owned companies have been trying hard to produce with reengineering, team concepts, customer-driven ideologies, continuous improvement, total quality management, leadership training, incentive programs, and the program du jour. While families that control businesses have natural advantages, they must use tools that help them capitalize on their advantages, and a family council is an excellent choice for doing that.
Overcoming challenges. While families in business easily produce results that other businesses can only reach with great effort, conducting business with family members also creates unique complexities. For example, family members in a business may be uncle and nephew and also business owner and employee. They may be father and daughter and also chairman and treasurer. They are brothers and also president and head of sales. They are mother and son and also employed shareholder and uninvolved shareholder. They are cousins and also accounting manager and general manager, and so on. As a result of living in the same family while also being business partners and coworkers, they face unique issues that are irrelevant to shareholders in public companies who do not have pictures of each other in their homes and do not share holiday dinners.
Role and emotional conflicts can quickly deteriorate the advantages available to a family business. In fact, the presence of family members in a business has the potential of being not only destructive to the business but often also to family relationships. The complexities of being a family can add conflict to the pressures that a business normally provides. A family council can proactively address these issues and can keep them from harming both the family and the business.
Utilizing evolution. Often in the second generation of a growing family and family firm, the main players in the business start to feel overwhelmed by increasing demands. The emerging input of multiple shareholders must be taken into account as the maturing next generation begins asking about career opportunities and learning about their role as shareholders; these questions can be particularly urgent during estate plan discussions. A business family might hold on tightly to centralized control of decisions (the few who run the company), or its members might see the need to involve others and make a transition to a democratic system for some issues. Often this transition is facilitated when a family employment policy is formed, and those in the business realize that their spouses have some very definite and sometimes contrary opinions about the way in which their children should be treated by the business. Furthermore, the family as a whole may realize that the business family issues are bigger (e.g., coordination of estate plans to ensure that the future ownership supports business, tax, and family relationship goals) than the scope of the business leaders' perspectives and priorities. Tensions such as these are lessened when the family comes to the conclusion that another forum (a family council) will allow for more voices to be heard, elicit greater involvement in critical issues, and ensure decisions that are not resisted by the board of directors or family members active in the business. With a family council, development and change in the business can be embraced as a means to future prosperity.
Creating solutions. Thus, family businesses must find ways to deal productively with the conflicts and demands of growth or to avoid them through planning and education. Only then will they enjoy the benefit of a family fully aligned with the business. Unfortunately, business and family experience alone offers little help in dealing with family business conflicts or maintaining an aligned group of shareholders. Something new is needed, and the family council is a structure designed for just this purpose. In order to keep the "family owned" advantage from becoming a competitive liability, structured family business meetings are essential. The most successful family businesses use them. In a study of 614 family businesses, Astrachan and Kolenko found a positive relationship between the existence of regular family business meetings and survival of the business over several generations. After a few generations, most business families come to the same conclusion: we must organize ourselves as a family, organize education, communication, and ultimately manage ourselves as a unified voice of influence where the business is concerned.
Regular family council meetings, when used effectively, can help avoid many of the conflicts that frequently plague family enterprises. Families using a family business meeting to establish a policy for the sustained employment of family members will be better able to avoid dividing the family over the departure of an underperforming member. By setting expectations early for what it takes to be an employee, a family business can avoid making a hiring mistake with a family member. By establishing ownership rules early, future conflicts over control of the business during succession can be minimized. Through the skills that are built among family members who repeatedly meet to discuss family and business issues, conflicts will be resolved and emotions defused before they become destructive forces.
A family council meeting is a forum for a civil discussion about some difficult issues. For example, it is a place for a levelheaded discussion with dad, who in the opinion of his children is not retiring soon enough; it is a forum for educating and listening to the young adults who want to make sweeping changes in part to demonstrate that they "have arrived" as business managers who want to contribute to business formalization and growth. A family council is also a forum for a spouse to understand why her mate is working so often on Saturdays even though other employees who are not family members are not required to work extra hours. It is also a forum for setting the rules regarding future ownership to avoid having two cousins independently decide they want to will their substantial holdings to their children who have no knowledge of or interest in the business.
Family business meetings deal with the gray area where business, family, and ownership meet, where it is not clear whether an issue should be resolved by the family or the business but have a great impact on both. Such issues therefore really concern both business and family and are thus appropriate agenda items for family council meetings. Crucial for success is realizing when to stop dealing with an issue at the informal family level and move decision making to the more formal family council. For example, the film Avalon tells the story of an immigrant Polish family who work together with business success and heartbreaking failure. The tensions between the generations as well as the conflict between those in the business and the extended family are depicted with great realism and reflect the experience of many business families. At one point in the film, during a time of escalating emotion at a family gathering, an older family member slams his clenched fist down and proclaims, "Family meeting!" The message is clear to all: their informal gathering will now be transformed into a more formal one. The declaration "Family meeting" implies that family members will now comply with rules regarding who can speak and what purpose is to be achieved. They understand that the outcome of their family circle will govern their behavior and that they must comply with the decisions arrived at. At some point, the business of the family transitioned from casual conversation to a higher level of discussion requiring a formal meeting with consensus rules.
The scenes from the Krichinsky family circle meetings in the film Avalon are chaotic with everyone talking over one another and with several conversations going on at the same time. While not about a family business, another feature film illustrates a second point: business families who meet must adopt a meeting style that will lead to success no matter how difficult the issue. In Dancing with Wolves a meeting of members of the Sioux tribe takes place after the discovery of a white soldier who has settled on or near their land. The issue is whether to defend their people from a threat and kill the intruder or befriend him and learn about the potential greater threat represented by those that might follow him. The meeting is a governance function of the tribe, and several members express their different views. What is noteworthy about the meeting as depicted in the film is that before expressing his own opinions and counterarguments, each member eloquently acknowledges the significance and merit of what the other has just said. This is a terrific example of respectful listening because it confirms that what has been said by a member has been heard and understood by the others, including those with contrasting opinions. This part of the film is an excellent example of the optimal process for a group to come to a decision about what should guide actions regarding a very important issue. This attitude of respectful communication is an important part of every family council, accomplished by establishing effective forms of communication then believing in them and abiding by them.
Purpose of this Book
Families in business, nonfamily board members, and managers in the business as well as advisors will benefit from this field manual. It is our purpose to provide the answer to why, when, and how to introduce and use a family council. In addition, this book will serve as a reference manual for the many questions that might come up during the course of governing the business family. In this introduction, we use the term "family council" because that is a widely used term to describe a governance forum for the family to meet outside of a business or shareholder meeting. There are several different kinds of family councils, and a family council in one family may look very much like a family association in another. One business family's family meeting is another's family council. Another term we use is "family forum," which is a general term covering family meetings, councils, assemblies, and associations. Complete definitions can be found in appendix 1.
There are many kinds of families, businesses, and business families. We begin by covering the many ways in which families come to establish family councils and the many reasons why they are resisted. Next, we define different types of business families and the different family forums that apply. In chapter 3 we then provide a description of different kinds of business families, mostly by referring to their size and the particular generations involved, and we then explain the family governance structures that commonly apply.
The chapters in the middle of the book deal with starting a family council, how to continue it, and how to utilize and preserve family assemblies and family associations. These chapters provide numerous examples, and the appendices offer additional resources. Chapters on leadership variations, transitions, family communication, and the use of facilitators provide supporting information regarding effectiveness and continuity of governance structures. Finally, even while there are many different kinds of family governance configurations, we provide a blueprint of the connections between family councils and four other entities: management, the board, the family, and the owners.
This book is designed to provide a field manual that can be accessed at any point without having to read all chapters in sequence. Thus, some repetition of concepts or definitions is intentional so that a reader might easily find the relevant information and learn how to apply it. There are many tools, examples, and case illustrations provided as this is a field manual or reference guide. The names of individuals, families, and businesses in our case examples are entirely fictional, and the situations they refer to represent the amalgamation of many different business family situations. Our intent was to combine multiple situations within each case, thereby providing an example that might be instructive to many different business families.
Finally, we hope the reader will pay special attention to both the content of the examples as well as to the processes involved. Both are vital, and generally we do not assign greater importance to one over the other; rather, in our view there should always be a balance appropriate to the situation between what is dealt with (content) and how the content is addressed (steps, attitudes and environment). Business families' success has often been due to their ability to adapt. Our hope is that our readers will adapt the information and examples provided here in a way that serves their unique and very special business family.CHAPTER 2
Reasons for Starting or Resisting a Family Council
What motivates a business family to establish a family council? Is it because they have heard it was a good idea from another business family? Is it because a family member read a book or went to a seminar? Or is a family council started because it was recommended by a consultant or advisor? Family councils are usually started for any or all of these reasons, among others. When we begin working with a family, we are curious to learn why a family is receptive to implementing a family council. We also like to understand why families do not respond to our recommendation to start a family council. Over the years, we have kept track of the reasons why families are ready to jump in as well as the reasons for their resistance to family councils.
Excerpted from The Family Council Handbook by Christopher J. Eckrich, Stephen L. McClure. Copyright © 2012 Christopher J. Eckrich and Stephen L. McClure. Excerpted by permission of Palgrave Macmillan.
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Table of Contents
List of Figures xi
1 Family Organization and Governance for Sustaining the Family Business: A Field Manual 1
2 Reasons for Starting or Resisting a Family Council 9
3 Stages of Family Businesses and Types of Family Councils 19
4 How to Start and Organize a Family Council 37
5 Running the Family Council 77
6 Committees of the Family Council 127
7 The Family Assembly and the Family Association 151
8 Special Family Governance Structures: Owners Councils and Executive Committees 207
9 Family Leadership 219
10 Using a Professional Facilitator 245
11 Transitions in the Family Council 261
12 Connecting the Family Council with the Board and the Business 277
13 Family Communications 303
14 The Journey Forward 319
Appendix 1 Definitions 323
Appendix 2 Family Council Charter Example 329
Appendix 3 Family Council Assessment Form 333
Appendix 4 Decision Making on Family Business Matters 339
Appendix 5 Examples of Shared Expectations 347
Appendix 6 Family Advisor Candidate Rating Form 349