How to create a family council - family-owned business management - includes related articles

Nation's Business, June, 1992 by Dennis T. Jaffe

One of the best ways to move your family business forward is to establish an ongoing family council.

Consider Stanley Rogers (not his real name), who founded Rogers Manufacturing after World War II. It has grown through acquisitions into a $300-million-a-year enterprise.

Stan used to be a classical entrepreneur--he ran the business himself, and his family had no role. A decade ago, several events changed all that.

First, Stan had a heart attack, and it took him several months to recover. Second, after business school and several years at another company, Nick, the oldest of the five Rogers children, asked to join Stan's business. Then daughter Betty, who had a marketing background, also asked to join.

Both children wanted to know what they could expect--that is, how ownership would be passed on to the family. The other children and their spouses were also concerned. The uncertainty made it hard for them to plan their futures.

Stan faced strategic decisions in the business as well. Revenues were good, but his products were in a maturing market, and he had to consider borrowing for product development and plant modernization.

With family members now coming into the business, his key managers wondered how they fit into future plans. Stan didn't want to lose his nonfamily talent. He felt everybody was looking to him, but he didn't have the answers.

Stan and his family began to work with a financial consultant, initially about estate and tax planning. But the scope grew. The consultant asked Stan questions he couldn't answer: What kind of life do you and your family want to lead in the future? What is most important to you and your family? Who will own the company? What would happen if you died suddenly? How can you be fair to all family members? How much do your wife and heirs know about your business and financial affairs?

Like many business founders, Stan had not thought about such things, and he regarded it as wrong to talk to his family about them. But the heart attack led him to reconsider.

As a family-business consultant, I helped Stan initiate a series of family meetings. Stan and his wife, their children, and the children's spouses came together for a two-day retreat, where each talked about how he or she saw the future, what each wanted, and how each viewed the business. It was one of the most moving and powerful events in the family's history.

Though not a very reticent family, the Rogerses had not taken the time to talk deeply about the things that mattered most to them: their caring bonds, their goals and desired futures, and how the business fit into them. They shared feelings about values, and they talked about some of the uncertainty they felt about inheritance, ownership, and the future. There were some jealous feelings expressed about the fact that Jim, one of the sons-in-law, had joined the company and whether that meant he would inherit a share of ownership.

The first retreat didn't settle anything, but it opened up a doorway and led to a planning process for the family members. They decided to keep in regular communication about family and business issues and to meet monthly in a family council.

A family council is the organizational and strategic planning arm of a family, where all members meet to decide values, policy, and direction. It is the vehicle for addressing and exploring family concerns that influence the business and the family.

As the Rogers' situation suggests, family businesses create too many complex issues for the family to leave to the will of one person. Many issues that seem like pure business matters can be resolved only by the family. Investing in a new plant, for example, promoting a nonfamily manager to CEO, or selling or splitting the business all have an impact on the family.

In most family business, such issues are decided informally and secretly. A family council makes these decisions open and explicit. Many families mistakenly feel that the best way to promote harmony is to avoid discussion of upsetting topics. By establishing a council, a family recognizes that very few issues get resolved by ignoring them.

The council is also an aknowledgment that old-fashioned patriarchy is dead. Father can no longer unilaterally decide everything of importance for the family. More participation, openness, information sharing, debate, and democracy are needed in today's complex family environment.

A family council provides a means for deciding the business's role in society; every family is judged personally by what its business does in the community. A council also provides an opportunity to explore how the family uses its wealth and provides for all its members. How will that wealth be passed on to the childre? How can the parents live when they are retired? What portion to the community? What values does the family want to express through the power and influence of its investments?

A council usually meets regularly, most often once a month for an afternoon or evening. It may include a weekend retreat once or twice a year, especially when family members are scattered around the country and must fly in for meetings.