A Family Council is a forum that you can use to manage the family affairs relating to the family business. In essence, it is a communication bridge between the family and the board.
Ideally it is made up of a representative cross section, drawn from different generations, backgrounds and experience. It needs to be of a workable size and the suggestion is that is between 5 and 8 members.
The Family Charter will include guidance to help the council to understand their role which will help improve the communication between the family and the business.
It is not the same as a Board of Directors, they are there to manage the family business, however the family council is there to manage the business family.
It is an advisory and consultative body, not one that makes decisions.
The role of the council is not one that forms part of any legally binding structure and the family council have no powers to vote on board matters or at any other meeting of the business.
The council doesn’t set the strategy for the business either, this responsibility lies again with the Board of Directors.
The council is acting as that bridge between the family and the business, via the board. In essence it can be seen as the ambassador of the family to the board.
In our view Family Councils are necessary when you get to a size of ten family members, some people would suggest this is too low and if your family is particularly good at communicating with each other you may decide on a higher number.
Why is a Family Council Useful?
They are a really useful communication mechanism. It allows for the policies, strategy and decisions made by the Board to be explained and discussed with the family council. Whilst the family council can’t overrule the board it can often be the case that policies and decisions can be revised or amended following discussions with the family council.
The board may decide that information around the finances and operation of the business is best communicated via the family council if it is more difficult or impractical to distribute to a large group of family shareholders.
The council can pass on key elements of information about the direction of the business to the wider family at family meetings / gatherings etc.
Each member of the family council will usually be charged with gathering feedback from their family group on a whole range of issues, again ensuring that everyone in the family has a voice and is able to be heard, but in a way that is practical and efficient from a communication perspective.
If the wider family want to know more about how the business is being run, they would typically communicate this via the family council.
Remember the benefits of good governance is that communication improves and as families grow in number and complexity the need for specific structure and forums increases.
Having good governance helps to avoid some of the pitfalls that come from poor communication.
Some of the other responsibilities that can be assigned to the family council include the organisation of the family assemblies or meetings, both in terms of the admin side and also the content of these meetings.
They would often take on the responsibility for things like education programmes for next generation family members and the philanthropic activities of the family.
How to set up a Family Council
The family charter would typically outline the process for choosing members of the family council. Getting a good mix of ages and experience is important to ensure a good level of representation of different perspectives.
If you are a smaller family business it may well be that you have a smaller pool of people to choose from and that some of those also have other significant roles within the business. They might be the major shareholder, a board member so it is important to recognise that this may create a conflict as the council will have a different role to the board.
Some duplication may be inevitable depending on the size and structure of the business but ideally would be avoided.
If your family business is made up of lots of different branches the temptation may be to ensure that each and every branch of the family is represented on the family council. This may be sensible to ensure that if there is a particular branch of the family that has a smaller proportion of the share ownership for example, that they are represented and heard.
It could also be argued that branch mentality is a bit outdated and could potentially be counter-productive. A lot of tensions within a family business can be traced back to this ‘branch mentality’ and the more appropriate way forward is likely to be to obtain a ‘whole family’ viewpoint and then seek out those within the family pool that have the most ability, enthusiasm and desire to fulfil the role on the family council.
If your family business is very large you may even have individual members of the family council representing committees such as family employment, education, social impact and philanthropy.
Perhaps the most important role on the family council is the Chair of the council. Most of the communication from the family council will come through the chair and so for that person to be given the best opportunity to succeed in that role it should be someone who has the necessary skills to do it.
They will need to have business knowledge, good communication skills and the ability to represent the views of the family to the board and vice versa.
Given the importance of this role choosing who should be the chair is something that should take time and care.
Once the family council is in place it is important to continue to monitor its effectiveness and if necessary have a system for replacing and rotating members of the council getting the balance right between continuity and rotation is important and it would normally form part of the family charter as to how often members are elected or re-elected onto the board but something between 2 and 5 years is not uncommon.
You can listen to Russ discussing the Family Council on this episode of The Family Business Podcast
If you would like help getting started with your own Governance please get in touch. We’d be delighted to help.