Family Office -Family Council (3/3)
Renewing the family’s commitment to the business, a natural outgrowth of family meetings, builds a stronger business. Family council meetings represent an investment by an ownership group in the competitive advantage created by patient family capital. It is an investment that increases the chances that shareholders will support the firm being managed for the long run. Loyal shareholders who are patient capitalists in a family enterprise can provide it with a unique ability to deploy longer-term strategies, allowing the enterprise to enjoy sustainable competitive advantages that public or management-dominated operating or investment firms can ill afford.
As family councils with their attendant meetings develop their experience and mature, their ability to address conflict improves. Therefore, while they should not be started during periods of conflict or when the needs of the family are urgent—as, for example, when a decision to sell or continue the business under family control presents itself—over the long run, family council meetings are an excellent vehicle for addressing issues that are hard to manage otherwise. These may include the ones just mentioned along with frustration over dividend policies and lack of liquidity, as well as anger over real or perceived unfairness of family employment practices, compensation, promotions, family benefits, and other opportunities enjoyed by some but not by others.
All of these problems are addressed and resolved to the best of the family’s ability by families with experience in family council meetings. Because some of the problems are based on feelings rooted in different perceptions, the educational mission of family council meetings can go a long way to create common ground and ameliorate conflicts rooted in misinformation, misunderstandings, or budding ill-will.
A family council is often given responsibility for the family’s philanthropic initiatives and for the creation of family offices to oversee trusts and other financial matters of the owning family. Because it gives family members a voice in the business, a family council relieves some of the pressure to appoint only family members to the board. Indeed, family councils often select one or two at-large members to sit on the board of directors in order to represent the family’s interest in board deliberations.
Although family councils and boards have different missions, they are also well served by some degree of integration. Having two members of the family council serve as at-large representatives of the family on the board, for example, will help to ensure that family strategy and family preferences are appropriately considered by the board. Nonfamily, independent directors can also be added to the family council in order to enable it to go into family board session as a separate part of its family council meeting. When in session as a family board, this family body takes up ownership, business, investment, and wealth issues across all of its enterprises including operating companies and family office investments and activities.
Family council membership should not exceed 12 to 15 members. While the educational and informational tasks of a family council can accommodate larger numbers of participants, family members experience difficulty working in such a large group in policymaking and decision-making tasks, particularly when in session as a family board. Participation in later generation family councils then relies on representatives from each branch of the family and each generation involved, with an eye to not exceed the 12 to 15 member recommended maximum.
For further informtion please contact us directly.