June 18, 2014

Family Council for Family Businesses


Last issue we discussed the importance of a family business having a functioning board of directors, with independent outside board members. An independent board is an important tool for managing the family business, especially as the business matures and the number of shareholders increases.

In addition to having a functional board, the family business should consider setting up a family council. The family council is a forum to consider the complex issues facing the family in business. Like the board of directors on the business side, the family council is concerned with policy and planning issues for family business but it looks at these issues from the family's perspective. For example, the question of whether to reinvest profits or distribute dividends is a relevant issue for the family council because the business is operated in substantial part to benefit the family. Input from the family council on this issue can help the board make a decision that is good for both the family and the business.

The family business has a very strong influence on the family itself and decisions that are made about the business effect all family members, even those members who are not active or who have no ownership interest in the business. Consider the impact on the family of choosing a successor to the CEO (who is also the mother) in a family business. The decision may be viewed as solely a business decision. However if the decision is between two siblings or between a family and a non-family member, it is easy to see that "family" issues will come into play. The family council can provide feedback to the board on how the board's decisions are impacting the family and provide input to optimize those decisions.

Another important reason for a family council is to facilitate the growth of common values and goals about the business within the family. Without common values and goals keeping the family in business together may not make sense. Many leaders of family businesses assume that all family members share the same dream for the business, but this is rarely the case. Disagreement within the family about the values and goals of the family business will seriously jeopardize its long-term viability.

Therefore it is important that a forum exist to explore the impacts of business decisions on the family, provide feedback to the board and to let family members come together to discuss values and goals for the business.

A family council is usually set up with all members of the family being eligible to participate. Unlike board members, members of the family council are not selected for their business acumen or training. Shareholders and non-shareholders, employed family members and non-employed family members, spouses and older children can all participate. The council can be a formal organization with regular meetings and appointed officers or it can be, an informal gathering of the family, called together as needed. At meetings, issues that pertain to the family and its relationship with the business can be discussed openly and addressed from the family perspective.

The challenges facing the family in business are immense, especially as both the business and the family grow. The family council, like the board of directors, can assist the family in finding workable solutions to the complex problems that arise when the family is in business together.

For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.

Back to Top