By Danielle Walsh

The word ‘governance’ is thrown around a lot when discussing a business’s management and ownership—particularly for family-run operations. Indeed, in family business, the notion that more governance is needed, as this is integral to success, is often repeated. While I don’t disagree, I have noticed much attention is focused on the use of boards of directors, boards of advisors, executive or management meetings, and family offices. A commonly overlooked governance structure I recommend to my clients is the family council meeting.

A family council is a governance structure intended to integrate the broader family into the overall succession process. These meetings are an opportunity for the entire family to reconnect, re-energize, and enjoy each other’s company separate from the official business. Such governance is particularly important for family-run retail businesses, which tend to require attention seven days a week, 52 weeks a year.

In my experience working with family businesses, once the first council meeting has been held, these events quickly become something the entire family anticipates and enjoys.

What is a family council meeting?

Family council meetings are typically comprised of the broader family, which can include spouses, in-laws, children, grandparents, and grandchildren, regardless of whether they are active or non-active in the business. Given the potential size and composition of the family council, these meetings are typically held annually or every couple of years.

These meetings are most effective when they focus on keeping family members informed of ‘big-picture’ issues. They are not intended to be used as a discussion or decision-making forum for the operation—this responsibility belongs solely to the business’s owners and managers. Rather, family council meetings are intended to inform and educate the broader family on employment and career opportunities, as well as the implementation of the succession plan. The meetings also allow relatives to connect (or reconnect) as a family unit and share feedback.

A warning

I am often contacted by potential clients in search of a facilitator for their first family council meeting. In many cases, however, it quickly becomes clear the business does not yet have a comprehensive succession plan in place.

To ensure a successful meeting, it is imperative all owners are on the same overall page, as appearing divided or unsure can result in conflict and lead to confusion for other family members. The ultimate goal of family council meetings is to provide clarity of information surrounding all sensitive management and ownership issues. To sustain/safeguard family harmony, this sharing of details requires consistency among owners—otherwise, a meeting meant to reconnect the family can very quicky become an event rife with chaos and conflict.

As such, prior to holding a family council meeting, I advise potential clients to put in place a comprehensive succession plan addressing all important issues (i.e. employment of family members, structure, compensation, management, ownership succession). Assembling the family prematurely can easily result in hurt feelings and disgruntled relatives. This can create more roadblocks to developing a succession plan and stall or, worse yet, eliminate the possibility of ever again holding a family council meeting.

Organization

For the first meeting, I strongly suggest businesses work with a facilitator. This neutral professional can help organize and facilitate the meeting with the assistance of a few members of the family (i.e. some active and/or non-active family members).

Ideally, an owner or senior family manager should be part of the organizing team. In the first meeting, a chair (generally a family member) will be elected, as well as an alternate. This person will be responsible for organizing and managing future family council meetings.

If the elected chair is not a family member, at least one active senior family member needs to be on the organizing committee. This establishes a formal link to the family business (the council is funded by the business, so it is important to have an active senior family member involved). To create this formal linkage, many families opt to make the council chair a non-voting board member for the family business.

To ensure the smooth running of the family council meetings, the organizing team, along with the facilitator, need to develop meeting rules to be reviewed and approved at the first meeting. These rules should address issues such as who can attend the meetings, how the chair will be selected/elected, who can vote on family council issues, how meeting agenda items are solicited, and so forth.

What is discussed?

The following is a sample of what the first family council meeting agenda might cover:

1) A review of the purpose of the council and the meeting rules. These should be approved at the meeting.

2) The election of the chair and the alternate. This should be done by secret ballot, with each family member (typically those over the age of 16) having one vote each.

3) A review and discussion of the key succession plans, including the guiding principles and the corresponding family business rules. After that, selective portions of the principles and rules should be reviewed and discussed at future family council meetings, depending on what is relevant at that time.

4) An overview of how the business is performing, presented by the owners and/or active senior family members. No confidential business information (as determined by the owners) is tabled at these meetings (e.g. compensation, dividends, profits, etc.).

5) An overview of the short-, mid-, and long-range plans for the business, presented by the owners.

6) An overview of the current thinking with respect to the implementation of the management and ownership succession strategies, presented by the owners.

7) A discussion of employment and career opportunities for family members, led by the owners with input from the broader family. This includes presenting the current organizational chart and highlighting management ranks, as well as presenting current and potential employment and management opportunities.

8) The sharing of what kind of employment and/or management criteria are required and expected to fill these jobs, along with compensation.

9) A discussion on community and philanthropic activities the family and the business are involved in, presented by the owners with input from the family.

10) Time allotted to address questions or concerns about the business in keeping with the overall objectives of the family council.

11) A brief evaluation of the meeting by each of the participants (done either at the end of the meeting or electronically after the meeting by the chair).

If it has not already been done, documenting the history of the business is a good activity for the family council to take on. This engages members of the broader family and serves as an excellent tool for recruiting new employees. The history can be updated over time to ensure future generations have a lasting history of what their founders created and how the family business has evolved over time.

Advantages

I have witnessed, first-hand, the benefits a family business enjoys by holding annual family council meetings. Depending on the ages of the next generation, it can sometimes take a few years before the entire impact is felt, but the key is to start early. My favourite part about these meetings is seeing kids who are 15 to 16 years old (and have been hearing the family business rules for years) ask questions about their future, the future of the business, and how they may be able to contribute one day.

These meetings also go a long way in motivating the next generation to get educated, obtain outside work experience, and understand the family business is an opportunity to be earned—not an inheritance. Some of my clients invite various non-family managers to speak at family council meetings to explain what their jobs entail, what skillset they needed to get there, and what their day-to-day responsibilities look like. It can be very meaningful for the younger generation to see what types of jobs are available within the business. After all, they may not be interested in becoming a gemmologist or goldsmith, but they might excel in human resources, marketing, or finance. Sometimes this nuance is not clear to the next generation (especially if Mom or Dad is a goldsmith, for example). Presenting an organizational chart with the various types of avenues available goes a long way in helping these individuals make an informed decision about their future.

When the next generation gets to the stage where marriage is being contemplated, it can also be meaningful to have the boyfriends/girlfriends of relatives participate in family council meetings. This allows these potential future members to hear about the guiding principles and business rules—especially those pertaining to the need for a prenuptial agreement (marriage contract) if the family member hopes to, one day, become an owner.

While I’m not suggesting this topic be sprung upon a significant other for the first time while at a meeting with the whole family present, this should be something openly discussed. Ensuring next-generation family members are aware from a young age of the need for a domestic agreement will help make having these conversations with a potential spouse easier down the line (particularly if the requirement for the domestic agreement is based on a succession plan endorsed and agreed upon by the entire family).

The family council also works wonders in strengthening familial connections. This can help to address the ‘cousin consortium,’ which is among the most challenging stages of a family-run enterprise. Once a family council has been established, the bond and values shared by cousins tends to be reinforced, as all share the same expectations, as well as an understanding of what the business can do for them and what they can do for the business. This clarity can help alleviate the animosity and conflict that often arises amongst cousins within a family business. Ensuring cousins (active and non-active) are integrated into the family business via these council meetings can go a long way in reducing the negative challenges commonly experienced by this group of family members.

Pre-meeting considerations

If active family members do not agree to the overall succession plan (i.e. who can work, manage, and own? How is this determined? How does one come into ownership?) or are unable to have productive, positive meetings themselves, it is unlikely family council meetings will go well. So, while this is a great governance structure to support the entire family and improve communication, the council will only be effective if active family members are all on the same page.

If this is not the case, the focus should, instead, be on getting active family members (particularly the active owners) to agree to guiding principles and general business rules to help guide their decision-making.

Summary

Family council meetings are intended to provide a communication forum to keep the broader family informed of what is going on in the business, provide the owners with a forum to promote employment and career opportunities to relatives, promote the succession guiding principles and corresponding business rules, and allow the family to connect or reconnect as a unit. Family businesses that have survived multiple generations of family ownership while maintaining harmony often refer to their family councils as one of the key elements of their continued success.

Danielle Walsh is founder of Walsh Family Business Advisory Services, a consulting company specializing in helping family-owned and operated businesses navigate management and ownership succession. She is a chartered professional accountant (CPA), chartered accountant (CA), and holds certificates in family business advising and family wealth advising from the Family Firm Institute (FFI). Walsh developed her philosophy and desire to help family businesses from her father, Grant Walsh, who has worked as a family business practitioner for the last 25 years. She and her father published a book titled A Practical Guide to Family Business Succession Planning: The Advice You Won’t Get from Accountants and Lawyers. Walsh also currently teaches the first family business course offered at the undergraduate level at Carleton University in Ottawa. She can be reached at danielle@walshfbas.com.