The Dilemma of the Mature Family Council

by Kelin E. Gersick, Ph.D

At the first meeting of the year, the seven members of the Franco Family Council looked expectantly at each other and waited for inspiration. The Council had been formed six years earlier at the conclusion of an exciting family retreat. At the time there was a high level of anxiety in the family about the future of the business. The senior generation was talking about retirement and no one knew if there was a succession plan. Communication was infrequent between the relatives who were executives in the company and the rest of the nearly 100 family shareholders.

In the years since the retreat, the accomplishments of the Council far exceeded everyone’s expectations. Communication was much improved among family branches and between the shareholders and the business executives. With the Council’s encouragement, the succession choices and timetables were shared with the whole family. The Council sponsored courses on financial literacy and estate planning. They organized an annual “Youth Day” where the youngest members of the family spent the morning learning about the business and touring a facility, and then enjoyed an afternoon at a barbecue at their great uncle’s beach house. Over the first year the Council hammered out a policy on entry criteria for employment of family members in any of their multiple businesses. In the third and fourth year they concentrated on professionalizing the family foundation and developing a procedure for family representation on the foundation board. Probably the finest hour for the Council was stimulated by a business crisis two years earlier, when the company was involved in a major merger and restructuring. The Council became the coordinator of information to the shareholders, helping the business leaders to keep the family engaged and channeling questions back to the directors and family leaders. The final meeting of the Council at the end of its fifth year was marked by satisfaction and pride at all they had accomplished for the family and the business.

But now, Gloria Franco, one of the veterans who had been a member from the start, broke the silence by saying out loud what was on everyone’s mind: “What do we do now?”

That’s an important question to ask. Over the past three decades, many business families have taken the advice of their consultants and friends and formed a Council as a forum for family discussion. Some of these Councils began with an urgent platform ready-made. They responded to pent-up frustration over shareholder input, or spotty communication, or a disruptive interpersonal or inter-branch conflict. Perhaps there was a crisis of succession or liquidity that needed immediate attention. An advisor may have suggested a checklist of pressing issues that helped sell the concept of the Council in the first place: policies on family employment, shareholder agreements, creation of a family office, newsletters, or next-generation engagement. During their first 1-3 years, most successful Councils work like task forces, moving with intensity through a set of reasonably clear challenges and previously undiscussed topics.

But what happens when the policies have been written, the family events have become routine, the newsletter is in operation, the succession decisions have been made and the transition is well along or completed? What is the “maintenance function” of the Family Council? Is it compelling enough to justify the effort and cost required, and to command the commitment and attendance of members? Governance in the initial period takes a lot of work, and family governors often get fatigued. Sooner or later attendance begins to fall off. Leaders get frustrated. The meetings begin to drag, or are marked with forced enthusiasm. Finally one member asks the question that Gloria Franco raised: “Why are we here?”

At that point, the Councils that succeed subtly change Gloria’s question to, “What is our work?” They remember that the impetus for beginning a Council was the realization that the family had important work to do that should not be left to informal Sunday afternoon discussions in the grandparents’ back yard or a quick meeting after Thanksgiving dinner. Now they need to hold themselves to the same standard of “value added” that they enforce for their board and their executives. They acknowledge that the efficiency and cost effectiveness of the Council should be periodically assessed. In short, they realize that worrying about “motivating” family members to be willing to take a turn on the Council out of loyalty or duty is not the right frame. The mature Council needs to reinvent itself, choosing new tasks based on a thoughtful analysis of real need, and then initiate efforts that accomplish those outcomes with quality and efficiency.

What new tasks? If a Council stops to reflect on its purpose, is usually begins with a discussion of the process benefits they believe the family has received so far from the existence of the Council. That typically includes:

  • Facilitation:  managing the conversations among family members
    • The Council has rules for interaction that make everyone feel safe. In many families there is a concern that the quality of discussion in the family will decline without a sanctuary from conflict and anger.
  • Prevention:  providing a safety valve where issues can be raised before they boil over
    • Who knows when a new hot topic will emerge? A Council gives the family a chance to anticipate the evolution of the family over time – aging, marriage, births, deaths, geographic moves and economic advancement and reversal – and work on future issues when they are still solvable.
  • Acculturation:  a setting where senior family members can demonstrate the family culture and values to younger generations
    • The Council may be one of the only intergenerational events in the family. It becomes the definer, and preserver, of the ongoing family legacy and unique identity.

These benefits are a boon to most families, but they are not the same thing as a specific agenda for Council continuity. The answer of what work to consider lies in the traditional 3-circle model of family business: an interlocking set of issues arising from three subgroups, the business, the owners, and the family. A 3-circle reflection by Council members about their unique family identity can guide agenda-setting.

  • Some families see themselves primarily as shareholders. They use the Council to address the core dilemmas inherent in that role: dividends, shareholder value, classes of stock, board representation, liquidity, and estate planning. In the extreme, the family chooses to blur the distinction between a Family Council and an Owners Council, and it becomes a forum that guides the positions taken by family directors and trustees, and sometimes oversees the selection of those directors on behalf of the entire family. For Councils with this identity, the new tasks are likely to be in completing the portfolio of ownership regulations. Is there a Family Constitution? A buy-sell agreement? Good norms or rules about prenuptial agreements, or estate planning? Interest in co-investing outside the company? If the Council has a good track record from its earlier years, it may now have the credibility to both host new discussions on the more challenging and risky topics around capital than it has ventured so far, and to become the non-legal forum for interpreting and mediating the agreements that are already in place.
  • Other Councils focus more on business operations, especially if the family is still in the owner-manager phase: succession planning, career development of family members in the company, entry criteria for employment, the company’s community relations and public image. For them the ongoing tasks of the Council might be to support and inform the family members who are working in the company, and to sponsor the education and communication activities that guarantee a continuous flow of ready talent from the family for continuity. Families often are not very proactive about talent development without continuous prodding. The Council’s new tasks can start with forecasting the short-, medium-, and long-term needs for family leadership in both operations and governance (boards). The design and implementation of training modules, internships, benchmarking activities with other families, and overall career development support for family members inside – and in some families, outside – the business and foundation can be a compelling new agenda that keeps a Council busy for years.
  • A third group of Family Councils never touch any of those topics. They concentrate on family issues: the family office, education for all generations, managing commonly held or “legacy” assets such as a country home or farm, planning events for recreation and celebration, building relationships among cousins, coordinating assistance to family members in crisis or with chronic health needs, and philanthropy. These Councils may find it easiest to set an agenda for continued service – every year there is another Christmas party or Family Assembly to plan. The challenge for these Councils is to remain more than party planners. In fact, family integration is developmental, not circular. All generations age, either growing up or growing old. Geographic dispersal complexifies collaboration; technology revolutionizes communication. The Family Assembly that worked so well in the early years may be ill-suited to current needs. Estate plans may mean that in the future, philanthropy will attract 20 or 30 or 50% of the family’s capital, but it gets 2% of the family’s attention in preparing for leadership succession in foundation governance. There may be a back-burner awareness that 3rd and 4th generation cousins who hardly know each other will some day be governing business partners, but it will be up to the Council to go beyond what parents are providing to build those bridges.

Which tasks to choose now? How can the Council prioritize, or blend, these three identities? It may seem obvious or mechanical, but in fact the best way to build motivation is to share control of the agenda. Whichever of these self-definitions has guided the first years of the Council, the best process for re-invention, and re-commitment, is to ask your constituents what they want now. Family Councils do not need to scramble to pick a new set of deliverables in order to justify their costs to the extended family, or to entice new members. Instead they can explicitly define their purpose at this moment to be reflection and stock-taking. They become both learners and educators for the family, modeling a culture of evolving a family legacy across generations, by facilitating a family dialogue about the reasons to stay together, not limited to business performance and generating wealth.

This reflection and re-focusing should be given the time and space to be done carefully and patiently. They may engage in surveys or an “interview tree” of structured conversations about individual goals and their relationship to common themes. They may concentrate on branch-to-branch communication. They may refocus one or more Family Assemblies to minimize reporting on the current operating companies, and instead design in-depth brainstorming on long-term goals and family mission and identity. Whatever technology or formats they choose, the key is an unapologetic commitment to truly getting to know family members better, and to facilitating their connections with each other. If the Council can use this transition moment to better understand family members’ personal “dreams,” and then help weave those priorities into a shared Dream, they may find a clear mandate for their own agenda, and an answer to their dilemma of “What do we do now?”