SAT 25TH NOV 2017

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Bringing the family business community together

The Family Council

3rd February 2017 Keanon Alderson Ph.D

Instituting a family council can be a significantly positive step toward managing the business in a more rational and professional manner.

In the majority of privately held multigenerational family firms, the family council is the main vehicle of family business governance. Instituting a family council is a significantly positive step toward managing the business in a more rational and professional manner.
 
The family council is more formal than a family meeting. The purpose of the council is to present and discuss the family issues of running the business. The family council is where problems, concerns, issues, and opportunities are presented and discussed, alternatives are weighed, and decisions are made. In a family council, the family usually takes a vote, and decisions are made either by a simple majority or by consensus.
Some families strive for unanimity, which can tend to delay decisions but has been found to increase family unity.
 
For the family council to be effective, all members must recognize the council is the proper time and place to present their point of view. One of the major positive attributes of the family council is that family members agree to abide by the decision of the council (even if they disagree or are on the losing end of the vote) and consent to not grumble about it outside of the meeting, but instead show support and unity for the family decision.
 
In smaller to medium sized firms the council acts as the governing body. In larger firms, most commonly public family firms, the decisions and positions of the family are presented by a member of the council to the board of directors. The family council elects at least one person to represent the family and sit on the board of directors.
 
The creation of a family council can be difficult to manage initially. Research has found that for the council to work well, it often needs to be facilitated by a professional. This enables the meetings to be more productive, allows every member the opportunity to present their view, prohibits one dominant family member from taking over, and also holds members accountable for following through on decisions.
 
The institution of a family council can be a tremendous adjustment for the owner- manager, who often leads in a paternalistic manner, to relinquish decision- making power and authority to the council.
 
Moving to a more professional and rational method of decision making has been shown to increase family business longevity. By the third generation of family ownership and control, there are a large number of family members involved in the business. There are cousins working together, and some second- generation members are still active.
 
With more people involved, often with differing goals, decision making is more difficult and conflict is common. This creates a need for a formal decision-making process.
 
There are several corporate governance structures similar to the family council including: the shareholders assembly, comprised solely of stockholders; and the family assembly, composed of family members by birth and marriage, ranging from owners and non-owners to family employees, and family non-employees such as spouses and in-laws.
 
Each family is unique and each business is unique. Families in business together should be aware of the various structures used to govern family firms for increased success and continuity.
 
Reproduced with permission from Keanon Alderson and The Press-Enterprise (www.pe.com)
Keanon Alderson Ph.D. is an associate professor in the Robert K Jabs School of Business, at California Baptist University in Riverside CA. His book “Understanding the Family Business” was published in 2011. He can be reached at kalderson@calbaptist.edu
 

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