The family council

Independent advice can be valuable

Family Business
Family Business

Imagine 96 shareholders in a company, all related, with both a share in the company financially and a say in how that business operates. Chaos might reign supreme, but this is the fate of the Halas McCaskey football family that owns the Chicago Bears. If the results of recent seasons are any indication, that structure has not helped their cause. Thank goodness they have a succession plan all worked out or they would have too many voices and too many people looking to get paid.

This is the fate of the family business if it isn’t managed properly. After a third generation, the family in the family business can mushroom to exorbitant levels. Take a couple in business together with two children and, say, five grandchildren. Right there is nine people, but add spouses, cousins, aunts and uncles…you get the picture.

To combat the problem of too many people with too many ideas and too many hands in the cookie jar, many family businesses have turned to an elected family council. This council meets on a regular basis and may include additional people to listen in on the machinations of the family business but not to add their two cents. One family I work with meets with the entire family and then breaks down into the working group of current owners and the next generation.

There are some complicating factors. One is divorce. When the ex has a piece of the family firm, or received it as part of the divorce settlement, things can get ugly. This is why a good council would encourage prenuptial agreements before wedlock can even be considered.

Good practice for family councils includes getting away from the office and going to a place that is recreational and conducive to thinking and relaxing. One family rents a home via Airbnb, and takes the whole family away. Getting away from the company is crucial, as it avoids interruptions. Taking away cell phones is an equally good idea if you really want to get anything done. This same family used the most recent council meeting as an opportunity to talk about family compensation. It got heated. There were differences between what some made and what others received, but the owners – the current generation – were prepared for those queries. They had studied the material on what was best industry practice and compensation for specific jobs. After a minor blood-letting, they agreed it was just for all.

Most owners say the most difficult thing to discuss is financials and specifically who makes what. Most next-gen folks say that the greatest barrier for them is when the current generation doesn’t share financials with them. So the next question is: When is the best time to share that information? A regular board of directors would want to see at least quarterly information, so why should a family business be any different? If there is an annual family gathering or council meeting, this is also a good time to bring up the numbers. It might also be a good time to bring in an outside facilitator should things go badly.

One of the most intense family council meetings I am familiar with took place over selling the company to an outside firm. The multigenerational family firm was being pursued by a listed corporation. All of the assets would be transferred to the new entity, including the name of the family. Family members would have stock and could check their stock price daily to see what they were worth. Everything went well until the stock price started to fall. By that point, no family member was involved in the formerly family business, but it didn’t matter…someone needed to be blamed. The stock plummet prompted a bitter feud and split in the family, which to this day has not been repaired.

From this scenario, you can see that rules and structure are very important to avoid chaos. Even with that in place, however, it is almost impossible to avoid problems. When money is involved with family, sadly, rational thought is thrown out the window. Having an outside-the-family council helps but, again, nothing can prevent bitterness from sinking in if people are inclined that way. In spite of the dour cases provided here, the family council can go a long way to heading off problems inherent in the family firm. Steps can be taken for the best results, but no outcome can be guaranteed.

The only guarantees are death and taxes.

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David Borst
Dr. Borst is the retired Dean of Business at Concordia University. He started up five businesses under borstthebrand.com and is COO of the Family Business Legacy Institute. He can be heard every Saturday morning as Dr. Dave at 6:20am on WTMJ radio with the FBLI show- "All Business". Dr. Borst is an entrepreneur, author, speaker, and blogger of a variety of topics from religion to politics or any of the topics you are not supposed to discuss.

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