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Family Office – Family Council (2/3)

This family’s first family council meeting was launched with a tremendous sense of history and a personal challenge to the next generation to do the right thing as the family and the business moved forward. They formed a family council in order to preserve the momentum created by the first family meeting. The five siblings along with five members of thenext generation continued their work on behalf of the entire family. No amount of legal expertise or foresight in the drafting of legal documents can match the goodwill and personal responsibility that next-generation members begin to assume when the importance and relevance of both family and enterprise are stated so eloquently. This example offers a compelling argument for creating family councils in multigenerational
family-controlled companies. Only the shareholders who are engaged by the founder’s and successors’ shared dreams and vision will choose to be stewards of the legacy. The rest will put their individual interests and agendas before anything else and are likely to exhibit the behaviors of rich but ungrateful heirs.

Family council meetings can educate family members on estate and estate-tax issues and guide nextgeneration members in the management of inherited wealth. They may also allow for policy making on issues such as: (1) family member participation in the business, whether through employment, consulting, board service, or the conduct of family philanthropy; (2) family strategy vis-à-vis the business, determining the right mix of growth/reinvestment and higher dividends/current returns; (3) liquidity for individuals or branches of the family who would like to diversify their assets using buy–sell agreements between shareholders; and (4) the rationale for having different classes of stock and trusts in the interest of corporate control, company agility, and the family’s economic well-being. The benefits of family council meetings are outlined below and include:

  • Understanding the family values and traditions that underlie the business and the family’s commitment to the business across generations of owners.
  • Appreciating more deeply the history of the family and its role in the business and in the successful competitive strategy pursued over the years.
  • Understanding the estate plan, ownership-transfer plans, and the need for corporate control and agility.
  • Defining, over time, the nature of family member participation in the business. This is especially important for next-generation members who choose not to work full-time in the business but want to contribute to it in some meaningful way. Opportunities for participation—in family philanthropy, community service, and industry association leadership—may be identified that add value to the enterprise and support the family’s role in society.
  • Providing support to family members. Family council meetings can be a significant reference and support group—for example, by financially supporting the education of grandchildren and providing emotional backing to family members with special needs.
  • Providing ongoing family problem-solving and conflict-resolution mechanisms. These mechanisms allow families to constructively address feelings of alienation and anger over perceived favoritism or unequal distribution of money, love, influence, or opportunity.
  • Reviewing the returns on the family’s investment in the business and legitimizing any concerns that shareholders may have about the management of the firm.
  • Making the priorities and preferences of family members known to the board of directors, which has the ultimate responsibility to mesh, or at least align, family priorities with the priorities and strategic imperatives of the business
  • Professionalizing the business by inviting key nonfamily managers to attend family meetings as resources, teachers, and mentors. By their skills and abilities, these nonfamily managers convey to shareholders the tremendous value that professional management adds to the family-owned, family-controlled company.

The existence of ongoing family meetings or a family council as a forum for family members reduces the likelihood that family concerns will be ignored or inappropriately exported to a board of directors or a top-management team of a family enterprise. Attendance at these meetings represents a deposit in the family’s emotional bank account—an investment in increasing trust and respect for all working on behalf of continued family wealth and opportunity while reducing the family’s likelihood of becoming a zero-sum entity.

For further information please contact us directly.

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