Week 9 Flashcards
Governing the
family
Best Practice: Family Business Meetings and
Family Council Meetings
Establish family business meetings for the
active family members as the primary communication channel to manage the all-
important family component during succession
Different from management meetings
Do not need family business meetings once succession plan is developed and other governance structures
implemented (only on an ad hoc basis if an issue arises)
Establish family council meetings for the broader family members as the primary communication channel to inform all family
members on the business
Used during succession process and
onwards
Family Business Meetings
Only active family members (no employees or non-active family members)
Purpose: To provide active family members with a dedicated forum to discuss family and business issues
pertaining to the succession
process/plan
The agenda for any given meeting can be primarily business issues, primarily
family issues, or both.
What’s important is to have the meetings!!!
Family Business Meetings
Family business meetings are the ideal forum to
discuss decision making
All active family members need to know who will
make specific decisions and how
This will allow them to effectively carry out their
roles and responsibilities with less conflict and
uncertainty
Meeting frequency – Should be held on a regular basis
(every 2 weeks) until all succession issues are
adequately addressed
Later, they can be held as needed
At a minimum, meetings should be held quarterly
even if there appears to be nothing new to discuss
Can argue that, if and only if, the family can hold
effective family business meetings should they move
into a family council setting
Family Council Meetings:
Purpose: to provide a communication forum that allows all the family (direct and indirect, active and non-active family members)
to learn more about the family business and to provide them with an opportunity to express their views on family issues that impact the business as well as business issues that impact the family
Typically comprises the broader family, which can include spouses, in-laws, children, grandparents, and grandchildren, whether active or non-active in the family business
The owners of the family business should assign a family member (preferably an active family member) to be the meeting coordinator or chair of the family council meetings
Consideration should be given to rotating the coordinator role among the family
If the coordinator is a non-active family member, consider assigning an active family member to assist the coordinator since he or
she will have access to the kind of business information that will be of interest to the
broader family
Overview of how the business is performing (summary of the
overall performance).
Overview of the short, mid, and long-range plans for the business (expectations/vision of owners).
Overview of the current thinking with respect to management and ownership succession.
Discussion of employment and career opportunities for family members.
Discussion of community and philanthropic actives that the family
and business are involved with.
Review and discussion of all or some of the family business rules developed by the active family members at their family business meetings. A dedicated family council meeting to review and
discuss the family business rules may be warranted.
Questions or concerns about the family business in keeping the overall objectives of the family council
At the first family council meeting you would also cover:
Review of the purpose of the
family council and the rules.
These should be approved at the first family council meeting.
Overview of the role of the
family business meetings and
how they differ from the family
council meetings.
Note: A number of family
business meetings would be held before the first family council meeting as most of what will be tabled needs to be discussed first
by the active family members (at their family business meetings)
Benefits of Family Council Meetings
Understanding the family values and traditions that underlie the business and the family’s commitment to the business across generations of owners
Appreciating more deeply the history of the family and its role in the business and in the successful competitive strategy pursued over the years
Understanding the estate plan, ownership transfer plans, estate-tax liability, and the need for corporate control and agility
Providing support to family
members
Management Table
Can be used when owners are having a hard time letting go of management
and decision-making
Next gen potential successor(s) create the management table
They are essentially management meetings between the next gen
successors
The exiting generation needs to give the next gen certain decision-making
responsibilities (need this in writing)
Board of Directors (BOD) (governs ownership)
BOD is a legal entity
Incorporated businesses need to have a board of directors
Required by law to have 1 meeting a year
Often held at the same time as the AGM (annual general meeting) of the shareholders
u In family businesses, the BOD is usually primarily or solely family members
u Larger family businesses that want to mimic or become public companies will have a BOD that is
comprised of a majority of non- family independent professionals
BOD have unique rights and
responsibilities, which expose directors to a larger sphere of liability, which may require the company to provide directors with
liability insurance
For this reason (as well as many others), many family-owned businesses prefer to restrict membership on the BOD to family members and use an advisory board as a complement to the BOD
Primary responsibilities of a board of directors
Reviewing the financial status of the firm
Deliberating on the strategy of the company
Ensuring the ethical management of the
business and that there are adequate internal controls
Being a respectful critic of management by asking insightful questions
Advisory boards
Are a group of respected peers selected by the
family business to provide advice on a number
of business issues such as:
u Strategy
u Compensation
u Succession
u Many of the same topics as the BOD but no
oversight of CEO
Advisory board has no legal status
u Usually the preferred alternative for most
small and medium family businesses
Family assemblies
In larger companies, the family assembly will be the annual
meeting of the broader family (what we have just covered as the family council)
The family council in this case will be a sub-group of family
members that work on organizing the family assembly and deal with issues
Having 60 or more family members in a room for any purpose other than education/dissemination of information is not productive
If there is a family issue that needs to be dealt with, a committee (know as the family council) will be created (mix of active and non- active family members)
For instance, could be to deal with a lack of involvement by a
generation
Family office
Family offices assist shareholders with the
responsibilities born out of their ownership relation
to the company
Family offices can shoulder primary responsibility
for:
u Joint family investments
u Family philanthropy
u Family private equity and venture capital investments
u Tax and legal advice to shareholders
u Tax return preparation
u The filing of required legal documents on behalf
of the shareholder
u Shareholder education
u The planning and execution of family council
meetings
u Shareholder meetings and family assemblies
u Administration of shared assets or properties
