The family council provides the leadership role in a family business. While the family constitution covers the framework and operations of the business, the council acts as a communication channel between the business and the family, and places this responsibility on the shoulders of a nominated group. Ideally, its members should come from both the family and the business, allowing it to moderate issues and defuse tensions as they arise.
Significantly, few family businesses have family councils. According to the 2013 KPMG and Family Business Australia survey, only 22 per cent of family businesses reported using a formal council (indeed, only 16 per cent said they had a constitution). Most of those would be larger family businesses.
That’s a pity because the family council can be a crucial mechanism for defusing one of the most common areas of tension, succession. The family council is a good tool for succession planning. Potentially, it could be open to all members of the family who have reached a certain age, say 18. It could also include spouses and partners of family members. One of its key functions could be to ensure that the younger generation has some input into the business, giving them a greater feeling of “ownership” in the process.
John Ward, a leading family business commentator, says family councils also help develop leadership and strategy; it’s a way of involving many more in the running of the business. In his work, Perpetuating The Family Business, Ward writes:
“Large, successful business families commonly have a family council, and the council itself often has three or four or more committees and task forces that need effective leaders and participants. These might include a committee on family education, a task force that looks at how to prepare family members for board participation, a reunion planning committee, a committee that plans family meetings, or a family philanthropy committee.”
In other words, there’s something for everyone. With the latest MGI survey finding that almost 60 per cent of family business owners say their children are not interested in taking over the business, the family business council can be used to give disinterested offspring a role in the business.
To set up the council, the family needs to sort out its structure and how it will be governed. How often will it meet? Who is eligible to be on it? Who will be chairman? How will decisions be made?
Ideally they should first develop a constitution that would set out formal guidelines. These could include policies for succession planning, employing family members, key performance indicators, remuneration for family members working in the business, entitlements, dividends and payments for family members not working in the business and distributions from the business to the family.
The council agenda could also include processes for managing family members in crisis, monitoring the family constitution to see if and when it needs upgrading, shareholder agreements for the buying and selling of shares within the family business.
It could deal with developing the next generation and encouraging their interest in the business and funding their education, coaching and business start-ups, professionalising the family business while ensuring it still holds on to the original vision, values and strategies and helping family members achieve a good work-life balance.
The family council at the Dyson Bus Services was set up in 2009 and flowed out of the family constitution.
Jenny Stewart, granddaughter of the founder Laurie Dyson, says the council serves as the conduit between the family and the business.
“[The council] gave us the ability to completely separate it so that the business could continue to trade as a business and not have to worry about the influence of the family. It enabled us to bring more corporate governance into the way we conduct our business,” Stewart says.
Each of the three families involved in the business nominate two members on to the nine-member council for three-year terms. The council also has another three from the second generation who are on the council in perpetuity.
“We meet four times a year and in that meeting we discuss the financial results for each of our entities, we discuss things like family professional development through the business, investment opportunities, distribution, we have the trading board report to the family council and family social events that we organise,” Stewart says.
The council offers two-year cadetships for the professional development of family members pursuing careers in the business. Family members wanting to set up their own business can seek investment by putting the proposal up to the family council. “It would be something the family would consider as an investment,” Stewart says. “It wouldn’t be a gift as such. It would have to be a proposal and seen as a good investment.”
Stewart runs the family office and is the family representative on the board, serving as the go-between the council and the board.
“Sitting on the board, my job is to see that the family culture and what we want from our business is adhered to in the decisions that are made by the board,” she says. “Rather than being purely business oriented, we need to make sure we have that family focus as well.”