Improving your Legacy with a Family Council
A family legacy is an incredible goal where the family’s financial and human capital is passed through multiple generations. However, with the adage of ‘shirtsleeves-to-shirtsleeves in 3 generations’ is the common story of many families. What can a family do improve the odds of not only success today, but tomorrow? One secret that successful multigenerational families have utilize is creation of a family counsel.
The family council is a forum used to consider the complex issues facing the family as opposed to its business. Like a board of directors on the business side, the family council is concerned with policy and planning issues from the family's perspective. For example, the question of whether to reinvest profits or distribute dividends is a relevant issue for the family council because the business is operated in part to benefit the family. Input from the family council on this issue can help the board make a decision that is good for both the family and the business. Whether the input of the family council is binding on company management or simply advisory depends on the ownership structure of the company.
The family business can also have a very strong influence on the family itself. Decisions that are made about the business affect all family members, especially those members who are not active in the business or who have no ownership in the business. Consider the impact on the family of choosing a successor to the CEO (who is also the mother) in a family business. The decision may be viewed as solely a business decision. However, if the decision is between two siblings, or between a family and a non-family member, it is easy to see that "family" issues will come into play. The family council can provide feedback to the board on how the board's decisions are affecting the family and, it can provide input to assist in those decisions.
Another important reason for having a family council is to facilitate the growth of common values and goals for the business within the family. This is sometimes done through a Family Mission statement. Without common values and goals keeping the family in business together may not make sense. Many leaders of family businesses assume that all family members share the same dream for the business, but this is rarely the case. Disagreement within the family about the values and goals of the family business will seriously jeopardize its long-term viability.
Other matters that may affect the business family include philanthropic initiatives, education expectations, communication, and conflict resolution strategies and a well thought out plan for preparing generational transition.
A family council is usually set up with all members of the family being eligible to participate. Unlike board members, members of the family council are not selected for their business acumen or training. Shareholders and non-shareholders, employed family members and non-employed family members, spouses and older children can all participate. The council may be a formal organization with regular meetings and appointed officers, or it might be an informal gathering of the family who are called together as needed. At meetings, issues that pertain to the family and its relationship with the business can be discussed openly and addressed from the family’s perspective. Therefore, it is important that a forum exist to explore the impacts of business decisions and important decisions within the family, provide feedback to the board, and allow family members to come together to discuss values and goals for the business.
The challenges facing a family or a family in business are immense, particularly as both the business and the family grow. The family council, like the board of directors, can assist the family in finding workable solutions to the complex problems that arise when the family is in business together, or when the business is growing and they need to deal with matters before they become increasingly difficult to manage.
At Northland, we now have two accredited Family Enterprise Advisors on staff specifically trained to help you and your family navigate toward success. Whether you have a family business, or your family needs more structure, we can provide impartial guidance and counsel to help you and your family overcome the challenges of creating a prosperous legacy. Please contact us for a complimentary consultation.