Family Assembly and Family Council
Where there are a small number of family members, some of whom are also involved in the enterprise as owners or managers, important discussions concerning the overlapping interests of the family and the enterprise are likely to take place spontaneously whenever needed. This tends to mean that they happen informally over dinner, at weekends, or during vacations.
However, as a family grows and their enterprise becomes more complex, the governance of the family becomes as important as the other parts of the family enterprise and informal governance may need to be replaced by more formal arrangements.
how to get organised?
If a family are to be involved in governance, the obvious question is ‘how do they get organised?’
A family assembly is a general meeting of family members who are eligible to participate in governance. If the assembly involves many people, a family council may be formed to organise the assembly and represent it in executing the governance tasks that have been assigned to the family.
It is vital that the institutions of family governance are well organised in order to be effective, and to ensure that the family’s contribution to governance is recognised and respected. The following will help to achieve this objective.
Establish the tasks that are to be assigned to family governance. This was covered in another post available in this website that categorises the tasks as social, educational and formal.
Decide who needs to be present or represented in the family assembly or family council to ensure that the governance tasks are executed effectively. The logic of this approach is that who needs to be present in family governance will be affected by the tasks that are to be undertaken. For example, membership could be different depending on whether the tasks are mainly social and educational, compared to there being a formal role.
Agree how the family assembly and family council are going to make decisions.
Finally, given that transparency and accountability are always markers of good governance, decide how the family assembly and family council will be held accountable and the level of transparency that is needed in relation to their role.
Who is ‘family’ for the purpose of family governance?
The following will help you to decide who should participate in family governance.
Should participation be limited to family members who are current owners or include those who are eligible to become future owners in terms of the rules on ownership? These limitations, however, could result in the so-called ‘family’ governance being more to do with ownership governance, than the needs and interests of a wider family.
Therefore, are family members who are ineligible to become owners considered to be family for the purpose of participating in family governance? For example, if ownership is restricted to bloodline family members, are their respective partners able to take part in family governance? An argument in favour of this would be that inclusion in family governance counterbalances to some extent any sense of exclusion due to the bloodline rules on ownership. This participation could help to build a larger reservoir of social capital by enabling the wider family to maintain emotional ties and commitments to others in the family enterprise.
Does membership have to be representative of the family in some way? For example, family branches, different generations and gender diversity. This is perhaps most likely to be a consideration when creating a family council to represent a broader family assembly.
Does there need to be a qualifying age range, a minimum below which people will be ineligible to take part in family governance and a maximum above which people will be expected to stand down?
Tasks and talent
A family needs to consider the question of eligibility from the perspective of the tasks assigned to family governance. Another blog post on this website categorises these tasks as educational, social and formal. For family governance to be implemented effectively the participants must include those whose presence is needed to enable the assigned tasks to be fulfilled. From this perspective,
If the task is to build social capital across the wider family, is there is a case for non-bloodline family members being involved, including those who will be parents of the next generation.
If one of the tasks is to educate family about their enterprise, there is an obvious case for those who are eligible to become future owners being involved in family governance.
If the tasks include influencing decisions that could affect the owners and the business, the view might be that participation has to be restricted to existing and potential future owners, former owners and perhaps other family members above a certain age whose experience is considered valuable.
Skills
Another consideration in relation to participation involves comparing the tasks assigned to family governance with the skills, talent and experience that the family can offer. This could result in a requirement that participants in family governance need a certain level of knowledge or experience or highlight the need to provide training to ensure that those involved have the resources to do a good job.
Balancing the above criteria for participation might require a family to make trade-offs in the interests of ensuring effective family governance as explained in the following example.
Assume that family governance includes the opportunity to influence some key decisions or to receive regular information about the enterprise. The family decide that they need to have a family council to do this on behalf of the family assembly because there are many family members, not all of whom will necessarily understand the information, and that information could be confidential and best not shared too widely.
Ownership of the family business is organised in family branches and the family instinctively feel that each branch should appoint a member of the family council. However, this bias in favour of representation of the family branches comes up against a reality that not every branch has someone with the skills and experience, or even the time, to devote to the family council.
So, a compromise has to be made that involves either not having the desired branch representation in the family council, or honouring the need for representation and accepting that this means that not all council members will initially have the skills needed to perform their governance role effectively. This skills gap could be addressed through training and education.
Decision making
The need to regularise decision-making in a family assembly or family council will again be influenced by the tasks that are assigned to family governance. The more formal powers that are assigned, the more likely it is to be necessary to specify how each body will make decisions.
Broadly the choice will be either to work towards a consensus or accept a voting method.
A family might choose consensus in the belief that this is the natural way for them to make family decisions, and in the hope that it will encourage behaviours that mitigate against the risk of adversarial debate that could lead to conflict.
This could go as far as agreeing that decisions should not be made if consensus cannot be achieved, and that discussions should continue until a consensus position is reached. This of course potentially gives power to a dissentient minority in the group, but the family might take the view that their relatives can be trusted not to abuse this power and only to hold back from achieving consensus when they genuinely believe a decision is mistaken.
To ease the process of consensus decision-making, it could be provided that any dissenting party has the right to have their reservations noted before going with the consensus, or even to stand aside in order to let a decision pass. Cooling-off periods may also be used to allow time for the type of calm reflection that provides scope for consensus to emerge.
If voting is needed in family governance, the family need to decide what method of voting best suits their needs and the majority that is required for a decision to pass. For example, they may opt for a democratic vote among all members or require voting to by family branch if this is how the family assembly or family council has been constituted. In other cases, the preference might be for votes to be held by the senior members of the assembly or council.
Consensus decision-making and voting could be blended so that the first task is to strive for consensus and revert to voting only if consensus is clearly not going to be possible. In having a vote, consideration has to be given as to what happens in the event of a tie. A common answer is that a casting vote is held by whoever occupies the position of chair, but if this is being used after consensus has failed it is worth considering whether the chair should be guided always to use their casting vote either for or against the decision, rather than the chair having discretion on how to exercise this voting power.
Transparency and Accountability
As the family enterprise becomes more complex it becomes increasingly difficult for informal accountability based on peer pressure and informal expectations and understandings to work effectively. It may become necessary to introduce more formal accountability. For example,
Should any of the roles in family governance be formally appraised?
If anyone involved in family governance fails to perform the assigned tasks to the desired standards does there need to be a mechanism for them to be removed; for example, a system of warnings, suspension, and ultimately dismissal?
Do those involved in family governance receive a financial reward or incentive in order to encourage the desired level of participation and the right types of behaviour? This type of incentive is often used in commerce and it is worth considering whether it has a role in family governance.
In the domain of family governance, the idea of appraisals, sanctions and financial incentives might not appeal on the basis that this is not how families work. The family might prefer to focus on maintaining a high level of social capital so that governance in action is based on trust and mutual respect among family members.
Transparency in family governance could be promoted by requiring communication and reporting by the family assembly or family council. For example, a family council may be required to provide an annual report about its activities to the owners and the board and provide more regular updates across the year. Or the family might want to use social media as a means of communication.
Keeping the family involved
Family governance creates opportunities for family members to have a meaningful role in their family enterprise without either having to be an owner or work in the business. This can be thoughtfully deployed to address issues that sometimes can be difficult for families to resolve.
For example, the senior generation often have difficulty letting go of their roles in the enterprise. They fear that stepping down as a leader and passing on their ownership will lead to a loss of status and diminished self-regard because they no longer feel that they are doing something useful.
Younger members of the family might have feelings about wanting to contribute to the family enterprise, provided this does not involve giving up other career and lifestyle aspirations in order to work in the enterprise.
In both instances a role in family governance might offer an attractive opportunity to make a meaningful contribution to the family enterprise which is compatible with their age and stage and other lifestyle choices.