Establishing a Family Council
The Jim Moran Institute for Global Entrepreneurship
As the family business grows there are necessarily more people involved and there is a requisite need for more formal governance structures. The family council is one such structure that can be effectively utilized to provide a forum for family communication and clarification of business decisions. Why is this so important? Communication in any organization is important to convey information and to promote understanding. In a family business there are just too many issues pertaining to both family and business to leave them to chance meetings. By establishing a family council, family business members recognize that openness and involvement, and sharing of ideas is critical.
This does not mean that family businesses do not communicate. The problem is that communication is often selective, with only a few family members involved. Consider the following situation where the daughter of an entrepreneur is given a management position in the family business upon graduation from college. However, when the son graduates from college he has to take a sales position before being considered for management. He has two options: not say anything and build resentment or risk alienating his sister by speaking to another family member. Oftentimes members of a family business incorrectly assume that the only way to keep the peace is to avoid talking about issues that are upsetting to them. If a family council had been established, the family member would have had an effective forum to discuss the situation and family members could address the underlying issue which is the need to establish employment policies for family members who enter the business. A critical task for the family council is to develop and recommend policies to the BOD that deal with issues that concern both the family and the business . Another critical task of the family forum is to clarify business decisions. For example, family members may be concerned about the owner’s decision to eliminate several positions in the company. Family members may not be aware that the company has lost a major account. The concerns of family members could be dispelled if the owner shared this information at the council meeting. More…