Family Council - What It Is and Why You Must Have It

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If you’ve been a part of a family business, even for a little while, you know that unexpected things happen. Plans get changed or derailed. Disagreements arise. Founding family members, being so used to running the business on their own and calling all the shots, get side tracked in pursuit of opportunities that no one else is aware of.

Things happen… Even to the best of family owned businesses.

And because things happen, those of us who lead a family business must assure that certain protective barriers are put in place to enable information flow, protect our business from unnecessary and often unintentional mission creep and create a culture of open, honest and frequent communication.

Putting it plainly, if those of us who are the key decision makers in our family business were suddenly gone, would those who are left behind, our key stake holders, know the what, who, how and when of our business?

One important protective boundary for every family business is formation of a family council.

The Purpose of Family Council

 It’s not uncommon to assume that since family members are a part of the family business, communication and information flow just happen naturally. It does not.

Dr. Dennis T. Jaffe, a professor at Saybrook Graduate School and co-author of Working With the Ones You Love: Building A Successful Family Business, recommends that families adopt a family council structure to formalize interpersonal communication and assure that all critical information is flowing freely up and down.

Dr. Dennis says that “In the family council, issues can be presented, information can be shared, misunderstandings can be cleared up, and private matters can be resolved without escalating them to involve the whole business.”

When critical information flows freely, when family members communicate openly, and when every stakeholder knows the answers to the what, who, how and when of our business, a culture of mutual trust is developed.

Ideally, a family council is established on the front end to anticipate all possible business complications, and to protect against unresolved or destructive conflict. In reality, many family businesses decide to establish a family council because conflict and certain issues already exist, and to bring family members and /or the business back on the right track.

Who Should Be a Part of a Family Council?

This can be a touchy subject since, quite often, even family members who have no functional role within the family business like to be informed or even share insights and ideas regarding the business.

Let’s first distinguish family meetings from the family council.

Family meetings are more informal, less structured and less frequent meeting designed to keep all family members (both those who work for the business and those who don’t) informed, and to discuss family challenges.

As we all know, having many family members in one room can become ineffective and anti-productive.

Family council is a more formal governing body designed to tackle and solve family business issues. Those family members should be carefully chosen in order to assure that every family unit is represented. Those who become a part of the family council should always report back to the other family members, as appropriate.

You may consider inviting a non-family member to be a part of your family council. Non-family members, if chosen wisely, can add objectivity and will be more prone to use logic over feelings.

A common mistake made when forming family council is forming a body without assigning specific roles to every member. In order to be effective, every council member should serve a specific function. Those decisions should not be taken lightly, and should not be assigned on relational basis, rather on merit and skill / ability basis.

What’s the Responsibility of a Family Council?

Depending on the nature of your business and on your family dynamic, these responsibilities may be slightly different, but below is a good list of primary objectives for a family council:

  • Protect family business values and assure that those values are a basis for all decision making
  • Serve as the entity where all family members can share personal objectives, concerns and ideas with reference to the family business
  • Establish business goals and objectives and put processes in place to assure accountability
  • Putting processes in place to enforce decision that have already been made
  • Prepare for and address issues of generational transitions and transitioning leadership responsibilities between family members
  • When applicable, serve as a communication link between the family and board of directors
  • Oversee the financial stewardship of business assets, including giving, community involvement, etc.
  • Effectively communicate business related issues with the rest of the family members to prevent the “surprise” factor

Family council also deals with questions like:

  • How do we want to handle business performance?
  • What’s our expectation for family members who want to join the business?
  • How will we make decisions, on what issues, and how will conflict be resolved?

Bottom line, a good family council is put in place in order to preserve family unity, business continuity, and to protect relationships.

What’s the relationship between Family Council and business leadership?

Family council is not a managerial or directing body, hence it should not direct, mandate or override decisions made by those who were placed in the managerial and leadership roles of the business. Family council can and should have a close relationship with those who manage the business, but the lines of authority and business decision making should be clearly drawn.

Documenting Family Council Meetings

Because family council is a governing body with specific goals and objectives, it’s important to document every council meeting. Documenting will protect integrity of every meeting, can serve as historical information, and can be used as information piece for other family members.

How Do We Start Family Council?

Forming family council can begin as an informal family meeting, where most or all family members are present. Usually there will be one or few individuals who will present the idea to the family members.

You can organize a family retreat in a relaxing setting and while you build relationship, set some time aside on discussion and planning around the issue of forming family council. Families can hire an outside facilitator to plan and conduct the meeting, especially if there is any apprehension about it, or the family is facing any difficult issues likely to surface during the retreat.

Engaging a trusted coach or facilitator to navigate the dynamics of the family discussions while driving the main objective of forming the council can be of great benefit. If you’d like to explore forming a family council in your family business, don’t hesitate to reach out to us! We’d be happy to be a sounding board or help you in more tactical ways!