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• A business that is well governed is free to work toward the highest and best objectives of business – maximizing profit, improving strategy, creating jobs, fostering employee development, and serving all stakeholders, including shareholders, employees, customers, suppliers, and the community.

• A family that runs smoothly is free to nurture and expand upon the most positive element sor its heritage, such as family values, pride, unity, history, tradition, mutual support, and legacies of service.
  

• Families in Business together have an especially powerful motivation to govern themselves well.

• Many business-owning families drift unconsciously into haphazard or destructive patterns of decision making and communicating that can threaten and even destroy those shared interests.

• A desire to work together for the general good of the family and the business is the common glue a growing number of family business owners are using to establish a framework for governance – the principles and processes that enable maximization of the potential of both the family and the business.

• Effective governance can empower leaders of the business and the family business: the synergy between a strong, unified owning family and a well-run family enterprise.

• Emotions among even a handful of shareholders can erupt into clashes that disrupt strategic planning, tie up Management in court for years, and drain corporate assets.

• Effective governance requires accountability between shareholders and the business.

• Effective governance requires setting family policies that would have prevented the seemingly arbitrary decisions that the sister found so damaging. Such policies govern family members’ participation in the business, liquidity for shareholders, information and education for shareholders, responsible steward-ship of shareholders’ assets, family successions on the board, and other potentially contentious matters. Policies and procedures, once accepted and understood, provide for shared expectations and a sense of consistency and fairness.

• Smooth-running family business embrace policies that provide for orderly decision making on difficult issues. Effective governance can be defined as creating processes that make revolution unnecessary. In the absence of these processes, they fester and turn malignant. Because no one lives forever, the lifeline provided by the single strong leader inevitably snaps. Then, the Business and the family both can fall victim to a profound and urgent need for governance processes that protect the interests of both family and business.

• Day-to-day management of business concerns-running operations, finance, employees, supplier and customer relationships, and so on. These are the responsibilities of management. They are the domain of the chief executive or executive committee and are not a focus of Family Governence Business.

• Ownership or shareholder concerns include:
  • Liquidity issues
  • Allocation of corporate capital
  • The survival of the business through ownership and Management succession.
  • The performance of shareholders’ investment
  • Strategic direction

 

Dimensions of Family Business Governance

• Family concerns are an equally important but more often neglected dimensions of family business governance. These include:
  • Family members’ shared interests in the health, prosperity, and continuity of the family
  • Family participation in the business
  • The role and image of the business in the community
  • Information and education of family members
  • Family communication
  • Manifesting family values and goals in the business

• Each has tremendous potential as a positive force in the family business.
  And if neglected, each has vast destructive power.

• Accountability in family business governance doesn’t mean turning the business into a democracy or “giving away the store.” It merely means setting up business and the family.

• Over time, either a “business first” or “family first” mode of operation can cause serious problems. A “business first” perspective allows family concerns to faster and erupt into clashes that can threaten the future of the business. A “family first” view can distract and drain management and undermine the competitiveness of the business. Either sharply increases the likelihood of conflict between managers and shareholders.

• In fact, both family and business domains are crucial to long-term family business Both require equal care. Neither needs to assume a dominant role. Instead, respect for the needs of the business must be balanced with legitimate family concerns if the family business – and the family – are to endure. Appropriate governance can provide balance responsive to all.

• The importance of family governance is not always as obvious. But in fact, one of the greatest values of owning of a family business is the opportunity it provides the family to experience the rewards of coming together and working together on common interests and goals.

• The dynamic quality of a cohesive, conscientious family bears powerful reciprocal benefits to the business, conveying a positive message to all stakeholders.

• Too often the business takes priority in family members’ actions, while the family side of the governance equation is under recognized, underappreciated, and underdeveloped. Family concerns then go unfulfilled – and grow potentially malignant – or surface in places where they don’t belong, such as management or board meetings.

• The principle of parallel focus on the interests of family and business, has proven the best and most enduring strategy for successful family businesses.

• Every family business, no matter how large or small, has “the business of the family” and “the business of the business”, which require a dual spotlight and a degree of separation. Like yin and yang, family and business are equally important and require mutual respect and equal care.

• Family members must earn a voice in business governance by showing or developing qualifications that convey the right to be heard.

• Five Family Qualifications

1. 1. Excellence
   2. Flexibility
   3. Literacy
   4. Preparedness
   5. Trust

 

• The business needs to be accountable to the family. Business leaders must respect the right of the family to be informed about the business and to guide certain overarching dimensions of its functioning. It also means major business decisions are guided by the family’s goals for the business on such issues as family employment or shareholder liquidity.

• Setting up separate governance processes for the business and the family is the best way to develop these disciplines.

• The distinct governance needs of the family are best served by family meetings or a family council (or similar family organization). Business governance needs are best served by an active board, preferably one with a majority of qualified independent directors. These two measures often represent a family business’s most valuable efforts to sustain a healthy family and a healthy business.

• Family meetings can range from occasional informal talks over dinner to regular sessions of a family council. Whatever from the take, family meetings allow airing of family concerns, the development of shared expectations, and smooth decision making around a variety of major family issues. These issues can include money matters, jobs or careers in the family business, education and training, succession questions, and much more. Family meetings also provide an opportunity for family members to learn to respect the complexity of the business and the roles of managers and directors in running it.

 

• Ten Benefits of Holding Family Meetings

1. 1. Building a stronger family
   2. Building a stronger business
   3. Planning for future ownership
   4. Planning family participation
   5. Managing inherited wealth
   6. Opening up the succession process
   7. Preserving family tradition and history
   8. Professionalizing the business
   9. Managing relations between the family and the board
   10. Recognizing and resolving confit

 

• Ten Benefits of an Active Board

1. 1. Providing in-house experience and expertise
   2. Encouraging self-discipline and accountability in management
   3. Providing a sounding board to aid in evaluating business owners’ ideas
   4. Offering honest, objective opinions on performance, strategy, compensation, and other business matters
   5. Assisting in strategic planning and monitoring implementation
   6. Offering insight into key people
   7. Asking challenging, penetrating questions
   8. Giving confidential and empathetic counsel
   9. Aiding creative thinking and decision making
   10. Enhancing cooperative relations with constituents including employees, suppliers, customers, and the community at large.

 

• Family businesses with active boards also are best equipped to help management meet such shareholder concerns as improving the quality of strategy, setting and reviewing objectives and policies, aiding in management and director succession, helping evaluate key managers, and so on.

• Roles of family, board, and management are separate and distinct yet complementary and mutually supportive. The family ensures that the business’s handling of the crisis is harmonious with its values and mission. The board ensures that shareholder interests are served and tries to help management make the best possible decisions, as well as foresee developments that could force a repeat of the upheaval. And management takes the operations, human-resources, and systems steps necessary to implement the re-engineering efficiently and well.

• Family Enterprise Governance:

Responsibilities for Major Issues
P = Primary responsibility
C = Contributing responsibility

• Holding family meetings doesn’t mean that family business leaders abdicate leadership. Family governance still incorporates two separate roles – leadership and membership. Good leaders listen carefully to family members, remain open to their advice and concerns, and try to respond thoughtfully and respectfully to their input. To accomplish that, they organize meetings or family councils. But the decision-making prerogative remains with the leader.

• Establishing family meetings or a family council can actually strengthen family business leaders by informing them about family concerns before they erupt into disputes. Providing a process for family members to air their concerns doesn’t mean the CEO has to take any advice that is given. Allowing family members to air their ideas in a timely way can prevent their concerns from festering into a destructive internal cancer that can destroy both family and business.

• The focus of family meetings is family topics, not a detailed report of the business’s financial results. In the long term, however, it is impossible to sustain family trust in the business without sharing information. To have confidence its financial results, outlook, and key strategic plans for the future.

• Active, involved directors need to understand the business’s financial performance in depth. Any effective board holds all such information in strict confidence. But directors must have financial data to help set goals and assess a necessary step to professionalizing management.

• Packing the board with family members has another major drawback: it encourages a blurring of the boundaries between family and business issues, a problem that almost inevitably leads to neglect of family concerns. The family deserves its own governance process, and allowing board and family functions to merge usually prevents this from happening.
• One of the best ways for a family in business to succeed through the generations is to anticipate future issues and talk about them as a family – before they become issues.

• Family governance should focus on some or all of eight key areas of family concern:

1. 1. Setting family policy, or agreements governing family behaviors, actions, or decisions.
   2. Articulating family vision and mission, or the motivating values and principles that help keep the family working together for the good of the family and the business.
   3. Attending to family organization, or setting up a framework that enables the family to learn together, share decisions, and communicate.
   4. Setting family ownership policy, or family policy in relation to the business, these are the principles that guide the business culture, goals and capital allocation, and rights and responsibilities of shareholders.
   5. Resolving conflicts within the family and providing methods for helping family members in need.
   6. Fostering family education and information, or making sure family members of current and successor generations have the knowledge and understanding necessary to play their chosen business and family roles and to achieve shared goals.
   7. Coordinating family civic, political, and philanthropic roles, or managing the family’s relationships with the outside world.
   8. Ensuring family fun, or nurturing the relationships and shared experiences that provide glue for shared endeavors.

 

A Sampling of Family Functions

1. 1. Setting Family Policy

• • • Develop policy on family employment in the business
    • Develop guidelines for family compensation
    • Develop employment policy on non-family managers
    • Determine philosophy of doing business
    • Decide on principles of ownership succession
    • Create family code of conduct
    • Develop processes for resolving conflict
    • Develop processes for family decision making
    • Decide role of business in supporting family goals
    • Determine family role in helping needy members
    • Decide on family linkage with the business
    • Develop guidelines for family visibility in the business
    • Build family cohesiveness
    • Sustain family ownership
    • Coordinate estate planning
    • Develop retirement or personal financial plan for business leader(s)
    • Set leadership succession principles

The family should set guidelines for family representation in management of the business. How important is it for a family member to be chairman or CEO?
To what extent should family members compose the executive committee?
The family also must plan for general family participation in the business.
What opportunities will next-generation family members be offered in the business?
What qualifications must they have?
Should in-laws be included?
How will family members be compensated?
How should family titles and authority be determined?
Should family members be permitted to hold summer jobs?
What if a family member fails as an employee?
A corollary question is, what career and performance incentives should be offered nonfamily managers?
The family also must weigh plans for ownership succession.
As the family gets larger, its leaders or members must decide how to govern themselves. Families also must decide how and to what extent business resources will be used to support family members’ needs and personal development.

 

1. 2. Articulating Family Vision and Mission

• • • Encourage positive family interest in the business
    • Articulate family values
    • Identify and articulate family goals
    • Create family vision statement
    • Develop family mission statement
    • Write family values statement
    • Decide role of family history in business
    • Decide family philosophy of doing business
    • Determine role of family goals in the business
    • Maintain family teamwork and harmony

 

Even at the earliest stages of the business, the family can begin to understand in as not just a vehicle for employing individual members but as an opportunity to build something meaningful together and manifest the family’s vision in the community.
The family vision is the foundation for a cohesive, well-informed shareholder base.
It sends a powerful message to the outside world, fostering optimism about the future of the business. It sets the tone for the business culture, helping managers develop a sense of purpose and helping to recruit and motivate employees.

*Example of a One Family’s Statement of Vision and Mission

VISION:
To be a strong, cohesive family whose core values encourage the development of competent, independent individuals who enjoy working together as a team to build strong families enterprises, and communities.

MISSION:
To build a strong and enduring family organization that promotes and embodies the family’s core values based on a four-pillar foundation of:

• • • Family get-togethers
    • Education and development
    • A sense of tradition in both family and business
    • A commitment to giving back

 

1. 3. Attending to Family Organization

• • • Decide how to administer, coordinate, and fund shared interests
    • Create a family bank of office
    • Set rules for family membership organization

As the family grows, part of its organizational responsibility is differentiating between the functions of family leadership and family membership.
Some families formalize this distinction by organizing councils or committees of family leaders or elders.
Family committees or task forces may also perform certain functions such as writing a family history or providing career counseling to family members.

 

1. 4. Family Ownership Policy

• • • Clarify the rights and responsibilities of ownership
    • Decide principles for business governance
    • Develop principles of corporate capital allocation, including appropriate dividend and re-investment levels
    • Clarify business goals
    • Decide makeup of business board
    • Participate in director selection
    • Set principles governing shareholder liquidity, including share redemption and company loans
    • Balance stakeholder interests
    • Determine character and risk of corporate investment portfolio
    • Determine role of business in supporting family goals
    • Set ethical standards for the business
    • Develop guidelines for publicity and community role
    • Decide family role in management succession
    • Decide family succession as directors
    • Determine rules for share ownership and transference

The family is responsible for keeping members informed and preparing them for their future roles in the family and the business. Family meetings give members a chance to develop such skills as leadership, conflict resolution, speaking, teaching, and running meetings. They also provide even the youngest family members a chance to learn the importance of listening; understanding each other’s personal styles, logic, and values; and following up on results.
Another family role is to encourage members to grasp the basics of management, including the functions of strategic, capital, estate, and succession planning. They also need to understand the distinctions between the roles of family members, shareholders, directors, and executives. As the business grows, families need to understand the value of a transition to professional management. Family meetings can help educate the family about the importance of non-family executives, the value of an outside board, improvements in financial reporting and planning, and other issues in this transition.
Family members need to understand the financial goals and trade-offs involved in running a business: achieving growth, improving profitability, managing risk, and providing payouts to owners. The family also needs to understand that there are multiple stakeholders in any business – employees, suppliers, customers, and the community, as well as shareholders. It is the family’s right and privilege to say that family is the first and foremost stakeholder in the business. But family members need to be aware of the impact such a decision has on other stakeholders and on the business as a whole. Some family businesses even make trade-offs among stakeholders a part of an annual report to family members. Preserving family tradition and history is another part of family education. Presentations by older members, family history books, family scrapbooks, and family trees all can help family members learn about themselves and the business and identify shared values and goals. By looking to the past, many families gain valuable resources for the future.

 

1. 5. Family Education and Information

• • • Foster good family communication
    • Encourage education in general
    • Educate the younger generation about family and business
    • Cultivate family skills
    • Determine family responsibility as business owners
    • Prepare future generations for leadership
    • Pass on family traditions
    • Pass on family culture
    • Pass on family values
    • Pass on family vision
    • Write family history
    • Maintain family archives

The family is responsible for gaining consensus on what it expects of the business.
This means deciding overarching business objectives.
No business can provide more of one goal without giving up one or more of the others.
It is the role of the family to decide what importance to assign each and, with the help of the board, to understand and weight the trade-offs that result.

The principles guiding corporate funds allocation among stakeholders are the province of the family.
To what extent should business capital be dedicated to business expansion?
To rewarding employees? To serving customers? To meeting family needs?
What kind of liquidity programs should shareholders enjoy?

The face the business and the family present to the world is also a family concern.
Does the family want privacy or a low profile?
What kind of business and family image does the family want to convey?
Some families set policies against single-person feature stories or photos and require members to talk about the family as a team, for instance.

The family also needs to decide who should own the shares.
Must shares remain in the family, perhaps passing only to direct descendants?
Can shares be given to charities?
At what ages should children control their shares, and what agreements are desired?

Most business-owning families have direct ties with management through members who are employed in the business. However, some families that have no members working in the business have developed a special role that might be called “active ownership.” These families have members who are vigilant in staying in touch with the business even though they are not employed in it.

A family member might be chairman of the board, even though he or she isn’t a fulltime employee. This doesn’t mean family members are entitled to overstep their bounds and interfere with management. It does mean they are sustaining family involvement through their presence and interest.

Three separate active ownership roles:

1. 1. Makes it his business to maintain comfortable relationships with key business managers including the CEO and to stay in touch with the managers-succession process to ensure that family goals and values are respected.
   2. Informs herself about business strategy, attending executive- and management –committee.
   3. Concerns himself with the business culture, visiting the company’s stores and store openings, chatting frequently with employees, and taking part in awards banquets and other ceremonies. By staying in close touch, this family sustains the benefits of family ownership despite its absence from management.

 

1. 6. Family Civic, Political, and Philanthropic Roles

• • • Set guidelines for family visibility in the public domain
    • Establish philanthropic principles and policies
    • Determine family role in civic life
    • Determine family role in political life

Business ownership often conveys a high profile in the community, whether family members choose it or not. Many families find it helpful to reach consensus on managing the family’s visibility.

Is there family agreement on particular political principles or goals?
Should family members be discouraged from political activity or encouraged to stress their independence from the family if they choose to run for office or back a particular cause?
What philanthropic causes does the family agree on?
Should donations be made privately or announced to the public?
These questions affect all family members, as well as the business, and it managed well can foster family pride, cohesiveness, and commitment.

 

1. 7. Ensuring Family Fun

• • • Organize family social functions
    • Back family projects
    • Attend to shared interests
    • Enjoy the rewards of working together

Having fun together is the glue that can hold a family together even in the toughest times. The simplest activity – annual reunions or social gatherings, family meetings at a resort or other vacation spot, or family retreats – can spark a renewed awareness of the family as a treasure and a resource. The socializing that takes place at such events can strengthen relationships and foster better communication about business and family matters.
Some families purchase a farm, boat, or resort condominium for the use of the entire family. Such shared investments in family fun can strengthen ties and build goodwill that will serve both the family and the business well.

• The role of director: It may be helpful to make an important point here about one role that we feel should not belong to the family, at least not exclusively.
  The ideal board consists of a majority, or at least a significant minority, of qualified, experienced, impartial outside directors effectively working together with family business leaders.

• The potential contribution of the board in the private company is often underestimated by family business owners.
  Many business owners who are committed to continuously improving their businesses and perpetuating family control say forming an active board of experienced outside directors is the best thing they have ever done.

• Directors also can be valuable to the family by providing an example of shared decision making and a model of informed, responsible business leadership. An essential role of the board is to prevent “disaffected owners” – unhappy shareholders.

• A majority (or at least a significant minority) of board slots should be reserved for a special kind of person – an experienced, objective, knowledgeable outsider, usually an active chief executive, who brings to the table background in the particular strategic issues facing the business, as well as sensitivity to the special concerns of family-owned businesses.

• An effective director’s only interest in the business is in seeing it grow stronger and endure.

• From the perspective of the board, there are two additional reasons not to pack it with family members. First, a family-dominated board tends to expand to an unwieldy size as the family expands. Second, while some family members may be deeply involved in the business and understand it thoroughly, all family members aren’t likely to be as equipped to help govern the business.

• It is usually more productive to view the family as one family and to build on common foundations rather than to stress the division among family members by recognizing them formally on the board.
  Involving outside directors in the first or second generation of family business ownership is far easier than reshaping an oversized fourth-generation board packed with representatives of every branch of the family. But if adding outside directors does involve separating family members from the board, it helps to communicate openly about needed changes and to emphasize the positive.

• Some business owners hesitate to form active board because they don’t know how to find qualified directors or fear that experienced people won’t serve. Identifying and recruiting good directors is a very doable task. Successful business leaders are often eager to “give back”, stimulated by the challenge and honored by the invitation to serve as an outside director.

 

Board Rules For Board Members

1. 1. Envision the board’s role in the company.
      The family business leader should develop a statement of purpose for the board.
   2. Develop a list of criteria for directors.
      Directors must be sensitive to the special needs of family business.
   3. Plan the board’s structure and meeting schedule.
   4. Prepare a board prospectus ”Prospectus for Board of Directors”.
      This one-to-three page document is a recruiting and networking tool.
      It explains the purpose and goals of the board.
      It describes the qualities and capabilities the business owner is seeking in directors.
      And it should describe the planned structure of the board, director fees, and anticipated time demands.
   5. Ask for referrals.
      People who know the business well – suppliers, customers, professional advisors (bankers, lawyers, accountants, consultants), friends, and business contacts – can provide referrals to CEOs, entrepreneurs, and business owners who have the kind of profit-making and leadership experience most business owners need.
   6. Write a letter of introduction.
      A brief statement of your purpose and plans, including the fact you are interviewing a number of people as candidates and have in mind several criteria.
   7. Meet with candidates and visit their businesses.
   8. Check other references.
   9. Ensure shareholder
   10. Make an offer.

 

BOARD FUNCTIONS

• • Board functions should derive from five key roles:
    • Ensuring effective governance,
    • Monitoring and improving business policy and strategy,
    • Providing advice and counsel to management,
    • Overseeing succession planning, and
    • Supporting family shareholders.

 

Example of Business Board’s Vision & Mission

One Business Board’s Statement of Vision and Mission

VISION

To be a dynamic, enduring, and successful family-controlled holding company adding value to our subsidiaries and developing management excellence in the working members of the family and others which it employs.

MISSION

To build a leading and enduring diversified holding company which is based on a three-pillar foundation of:

• • • a strong core operating company
    • a targeted group of higher-risk venture capital investments
    • a diversified portfolio of income-producing securities

• Monitoring the performance of the business is another role of the board.
  Directors can ensure that the performance measurements used are meaningful and that standards are applied systematically. And when performance falls short, board members can help identify roadblocks and figure out how to overcome them.

• Another focus of the board is to help improve the quality of strategy. Evaluating and approving the business’s strategic plan is one step in that direction. An effective board also can help the business owner challenge assumptions underlying strategy.

• One of the most valuable and most often overlooked roles for experienced directors is to provide advice and counsel to management. A good board serves as a trusted confidant.

• The presence of an active, effective board is a resource to family members in several ways. Directors can help set and monitor shareholder liquidity policies in accordance with goals set by the family. They can oversee implementation of policies governing family participation in the business and help evaluate family members’ performance and compensation – certainly sensitive issues.

• Respected directors are a resource for educating family members, both by example and by talking about family business issues in fireside chats, at family meetings, or in other settings. The board also is a kind of insurance policy against crises – that is, if the owner-manager dies or is disabled before a successor is ready. In such cases, directors can serve as trusted advisors to a spouse or other family members, preventing hasty or ill-planned reactions. Respected directors also can be a stabilizing influence on the family in times of high emotion or conflict, modeling problem-solving skills or discreetly urging resolution of the conflict.

• Well-chosen outsiders command respect inside and outside the business, aiding in community relations. The existence of a respected board sends a message that the family cares about stewardship and is committed to the business.

• Many crucial family business issues are overlapping concerns of both the family and the board. Dividend policy, shareholder redemption policy, director search and evaluation, business goals, business ethics, family employment policy, and succession policies are among the matters that deserve both family and board consideration. In many cases, the family initiate’s decision making and the board helps shape the outcome by helping the family weigh business consequences and trade-offs. For instance, the family might decide that it wants the business to pay high dividends. That is the family’s right as shareholders. However, the board might perform a family-education role by pointing out the consequences. Excessive dividends drain business capital and can prevent re-investment or needed R&D spending, weakening the business and potentially destroying the family’s economic foundation. When this message comes from independent directors, it may carry more weight than from a family member with a perceived vested interest.

• If the family decides to use business capital to finance entrepreneurial ventures by family members, for instance, the board must be involved in helping decide the interest rate, term of the loan, and the degree of risk that is acceptable to the business. The family needs to be aware that such decisions also hurt the ability of business leaders to gauge the business’s performance and ensure earnings predictability.

• The family should be clear and consistent in communicating its goals to the board and others. This enables directors to be true to those objectives in their oversight of the business. Directors can best serve those business-owning families who can speak with one voice, or who have at least made an honest effort to reach consensus on the family’s vision, values, and goals.

• Any individual member’s violation of family values – legal trouble or bad behavior in the community, for instance – can create tension in a business culture built on a foundation of integrity and self-responsibility.

• The family should be expected to do its homework – to read share agendas, to educate members about family responsibilities, and so on. And directors should expect the family to cultivate respect for managers of the business, viewing them as professionals who play difficult and complex roles.

• Directors of family businesses are obligated to respect the rights, privileges, concerns, and feelings of family owners. Owners of family businesses aren’t usually dispassionate investors who see their holdings as just another stock. Typically, they are deeply invested emotionally in the image and performance of the business. Directors should be attentive to family concerns and should communicate clearly and readily with the family.

• Family members have a right to expect directors to adhere to the highest standards of professional evaluation of the company’s strategy and performance – maintaining all the while a sensitivity to the fact that the business is family owned. Family members also are entitled to opportunities to identify with the business, to play a visible role at business events and to serve or support the business as ambassadors to the community. This might mean attending employee picnics or ceremonies honoring 25-year employees, representing the family at company-sponsored community events, and so on. Family members also should have an opportunity to tour new facilities.

• Planned linkages between the family and the board serve another purpose: shaping younger family members’ expectations about the board and depending their understanding of the role of the family in relation to the board. Having a family member serve as board chairman is a common way to link board and family, of course.

 

Communication ways between Family & Board

1. 1. Fireside Chats.

Informal briefings or fireside chats give directors an opportunity to address the family informally about family business issues. These sessions can build trust and help shareholders understand the business.

1. 2. Written Communication.
      Shareholders receive board agendas and minutes, send out periodic newsletters to update shareholders. Annual written report to family.

1. 3. Annual Social Functions.
      Invite directors to attend all or part of annual family retreats, picnics, or holiday parties. This provides an opportunity to get acquainted, share information, and develop trust and open communication.

1. 4. Joint Meetings.
      Gather family members with the board to meet jointly once or twice a year. This gives the family members a chance to watch directors in action and to share and discuss family concerns together.

1. 5. Regular Requests by the Board for Agenda Suggestions.

1. 6. Overlapping Meetings.
      Plan meetings in a way that encourages interaction. Family meetings might be scheduled before board meetings, with a family member assigned to report to the board on ownership-related issues.

1. 7. Special Board Sessions.
      Full board to meet with significant shareholders.

1. 8. Family Involvement in Choosing Directors.
      The family should be given an opportunity to meet director candidates and help determine their suitability.

1. 9. Family Observers or Liaisons on the Board.
      Designate one or two members of the family, chosen on a rotating basis, to sit in on board meetings regularly. Designate a person outside the family to act as a liaison.

1. 10. Governing Committee.
       Set up a governing committee of selected family members and directors to communicate and coordinate family and board concerns.

1. 11. Directors Serving as Trustees for the Family.
       Call on directors to serve as trustees for members of the younger generation in cases where stock is put into trust, for example. This enables directors to manage the holdings with the best interests of both family and business in mind.

1. 12. Directors Serving as Mentors to Family.
       Ask trusted directors to serve as resources to the family. This might entail mentoring a successor or other family member working in the business, but it also can mean supporting the entire family in managing family concerns.

1. 13. Informal Board Meetings with Shareholders.
       Hold informal board sessions before or after the regular board meeting two to four times a year to discuss business concerns with significant shareholders.

1. 14. Survey Family Members about Their Concerns.
       Conduct periodic confidential surveys of family members to identify issues and concerns. The results can be helpful to directors in understanding shareholder intentions and needs, as well as to family leaders.

• Some family members still may want to take part in board meetings because they find them interesting and educational. Others might want to watch directors to make sure they can trust them. While these desire are understandable, it is important that family members understand that if they do attend board meetings, their role is as observers. They should not expect to vote or participate in discussions. They should at most ask only an occasional question, and they should avoid leading the discussion off truck. The key is to avoid diluting or diverting the special focus of the board. Outside directors are special resources, and the more input they are able to give at board meetings, the more the family business gains.

• Family shareholders need to have confidence and trust in the board process. While family concerns are of fundamental importance to directors, family meetings or a family council are the best and most efficient ways to express them.

• First-generation business owners often handle family issues in casual family talks around the dining-room table. At this stage, the family leadership and membership functions don’t usually require formal organization.

 

 

Evolution of Family Enterprise Governance Structures

 

• Family business leaders often need to be even more explicit about what they are doing because governance processes are so simple.

• As children grow older, parents may spend more time talking with them about the business. Family participation, succession, leadership transition, and family skill building are often the focal points of these talks.

• As seconds-generation family members assume larger roles, the focus often shifts to team building, setting common goals, and cultivating mutual interest, such as family harmony and family education. At this stage, many families find they need to be more explicit about shared goals and mutual interests some must make an effort to sustain family harmony. Family members may need educating, too, about any steps to professionalize management or revitalize strategy of the business.

• As some family members grow more remote from management of the business, family concerns tend to focus more on shareholder issues, such as liquidity. A crucial role of the family at this stage is to foster a continuing sense of family identity and commitment to the business. The family often naturally develops grater interest in family tradition and history, a valuable resource for strengthening the family and the culture of the business.

• In one large business, all 50 family members meet twice a year in a family assembly. But 5 people elected by that group compose the family council, whose role is to provide guidance and set agendas for the family association, as well as make some decisions for the family as a whole. Other families create a family council made up only of family members who are employed in the business.

• The first priority in any family meeting is for as many people to attend as possible, especially shareholders not employed in the family business.

• Family reunion parties, should probably be handled as a personal expense. That avoids the risk of creating a negative impression on other stakeholders in the company.

• A family education committee might organize fireside chats or educational seminars for family members. A communication and information committee might publish a newsletter and arrange for sharing of board and family agendas. A governance committee might oversee governance processes and ensure that problem-solving policies are in place. A philanthropy committee might oversee the family business role in the community. And a family history committee might write a history and manage family archives.

• A family bank may develop a family venture capital fund to foster entrepreneurship. All these activities should carry out agreed-upon family goals.

• Junior boards may be used as a development tool. These panels are usually made up of five or six younger family members serving two- or three –year terms. Members are sometimes selected on a rotating basis and sometimes automatically assigned to the junior board once they reach the age of, say, 25.

• Often, the junior board meets right before or right after a regular board meeting in a simulated session. Some families find guiding a junior board is a valuable and rewarding job for a retired CEO or chairman emeritus, who can pass on the benefit of a generation of business experience to future leaders of the business. Most junior boards are not asked to vote on agenda items; discussion and presentations are used as learning tools instead. By participating in these simulations, younger family members learn in depth about the judgment, trade-offs, and experience required of business leaders. If they meet before the main business board meeting, they may be given an opportunity to attend the regular board meeting and observe directors dealing with the same agenda. The junior board process can work nicely as a tool for including younger family members in the governance process and making them feel empowered. It also sends a message to the business that the next generation of family members is serious about governing the business well.

• In larger families with more mature businesses, meetings of family members may overlap with shareholder meetings. This works fine as long as all family members are shareholders. If they are not, the family must decide whether immediate relatives of shareholders, or potential future shareholders, should be included in shareholder meetings.

 

 

Examples of Agenda Topics for Family Business Meetings

 

• Though governance is an abstract concept, the goals of good family business governance – smooth decision making, cohesiveness, effective conflict resolution, and freedom from political warfare – are necessary foundation stones to sustaining a healthy family and a heathy business.

• Many business owners dismiss the consequences of failed governance – shareholder battles and defections, conflicts between managers and family members, or the destruction of the family by the business or vice versa – as the results of human failings or normal family business tensions. In fact, these kinds of problems can often be eased or averted through effective governance.

• Good governance means establishing two distinct and separate points of focus – one on the family and one on the business. The focus of family governance should be to find consensus on matters where owners’ wishes matter most, as well as to provide family members with a shared sense of identity and mission that transcends their individual interests in the business. That means attending to such shared concerns as family policy, or rules governing members’ behavior and decision making; family organization; family education and communication; the family philosophy of doing business; family goals for the business; family civic, political, and philanthropic activities; and family fun.

• The focus of business governance should be to serve shareholders and other stakeholders and to meet the goals set for it by shareholders and management. The best process is to set up an active board, preferably including a majority of qualified, experienced outside directors. Such a board can provide advice and counsel to the CEO; help monitor the business’s performance, planning, and policies; aid succession planning; and help improve the quality of strategy. Directors also can support family shareholders, assisting in family education, monitoring family policies, and helping build shareholder trust and confidence in the business.

• While the functions of good family business governance stay the same as the family and the business grow, the forms these governance processes take change.

• While every family business is unique, embracing systematic governance processes can help any family business achieve goals shared by virtually all: orderly decision making, peaceful continuity, and the freedom to make decisions based on the highest and best purposes of both the business and the family.