Andrew Keyt is president of the US chapter of FBN International and executive director of the Loyola University Chicago Family Business Center.
It can often be easier to monitor the success of the business with the appropriate measures, than to address the more emotionally charged success of you as a family. Andrew Keyt explains why a family council is essential to the longevity of the business
We often hear that a family businesses' greatest strategic advantage is a unified shareholder group. We hear that a family with a common vision for the future of the family and its relationship to the business can react more quickly to changes in the business environment, take a long-term vision for the future of the business, and ultimately out-perform its larger, publicly-held brethren. The most commonly advised approach to building a unified shareholder group is a family council.
One can quickly learn the basics: that a family council is a representative governance structure that families use to convey important business information, moderate discussions and decision-making, resolving conflicts and building relationships amongst family members. The discussion that is often overlooked is answering the question: how will we measure the success of our family council?
Many business owners find it easy to talk about the success of the management and ownership of the business for two reasons: we have many objective measures to monitor business and ownership success (profits, return on assets, share value); and it is easier to divorce ourselves from our emotions regarding the business than regarding family members. Talking about what makes us successful as a family seems an insurmountable task because we don't seem to have logical and rational measures of success. Families also struggle to understand the difference between family and business goals.
So how do we measure the success of a family council? To evaluate the success of a family council, we must understand its core purpose, create a clear mission and clear set of goals and expectations for the council, and then evaluate the family council's performance. What often confounds this process is that treating family decisions so formally feels awkward and out of place. But what we don't often realise is that the absence of a clear mission, goals and objectives, it is far more likely that decisions and discussions will be driven by emotions.
So let's start with the core purpose of the family council. The core purpose of the family council is to work with the family to articulate the mission, vision and values of the family in relation to the business, establish the important policies and procedures, to manage the family's relationship with the business and manage family communication and education. It is not enough to create these documents and expectations, we also need to measure the amount of family commitment to them. Families should have a high level of commitment. Diversity of opinion, however, is acceptable as this is good reason for discussion and discussion builds unity and family resilience.
Once family members have created a clear understanding of the core purpose of the family council, the next step is to get a clear sense of the goals and objectives that the family council should have in pursuit of its purpose. By establishing a clear set of goals you are creating a clear set of expectations of what the family council is about and a way to measure the council's success. The goals and objectives necessary to fulfill the purpose of the council will vary from family to family. The important point is that there is a process where all of the issues important to family members are put on the table so the family can prioritise their issues, with as many family members involved as possible.
With a clear sense of purpose, and a clear sense of goals and objectives, the final step in the process of answering the question of our family council's success is to use the mission of the family council and the goals and objectives of the family council to evaluate its performance. Do the family feel there is unity around key issues, are there changes in the degree to which family members believe they will support one another, what is the level of agreement and commitment to mission, vision and values, and are the set goals of the council being obtained in the time-frame anticipated? A recent survey of over 250 business owners from the US and Europe showed that while 39% had active family council's, none of them formally evaluated the success of these family councils.
While a lack of clear goals and objectives is one of the reasons that families avoid the process of evaluating their family councils, there are several others. It is often very hard to give family members direct and honest feedback on their performance without raising the level of emotionality, and increasing the possibility that a family member feels hurt.
Because of the informal nature of communication in most families, to go through a formal process of evaluating a family council often feels stiff and bureaucratic. The majority of family councils operate on a volunteer basis, and thus it feels difficult to deliver feedback with those who are volunteering their time for the benefit of the family and the business.
While these impediments to evaluating the success of the family council are understandable, for family businesses with extended family groups it is imperative to evaluate the success of the family council in order to improve it and enhance family stability. An evaluation of the family council starts with a self assessment. The council should be looking at the goals and objectives and assessing their success towards achieving these goals. Self assessment in itself is not enough.
Families commonly report an ebb and flow in the satisfaction of family members with family meetings and family council's. While many times this waxing and waning of satisfaction is due to a lack of clear goals and objectives, it is important to regularly solicit the feedback from the larger family about whether the family council is adequately representing their interests.
Finally, an important role of the family council is managing the communication between the family and the board of directors. To adequately evaluate the success of the family council, the input of the board of directors is crucial. So the assessment process consists of receiving feedback from the family council members, the larger family, and the board of directors.
The reality is that the greater the number of shareholders, the more diverse will be their thoughts and opinions and the greater the potential for family business discord. A family council can be a crucial tool in managing this complexity, but it is difficult for families to evaluate the effectiveness of these council's. By creating a clear sense of the mission of the family council, clear goals and objectives, a family can easily create an evaluation process for their family council to answer the question: "Are we successful as a family?"