DO YOU HAVE AN OWNERS COUNCIL?
It’s a question I often ask multi-generational family business owners. “We have a board,” they respond. Or, almost as frequently, “We have a family assembly.” Rarely do they have an owners council in place. But, all three forums have unique roles, and many multi-generational family-owned businesses need all three.
THE BASICS
The primary roles of the Board of Directors are to oversee the business; approve strategy; and hire the CEO. Directors typically include owners, senior management, and independent directors (or non-voting advisors).
The primary role of the Family Assembly or Family Council is to maintain and promote family relationships. Members of the Family Assembly typically include everyone considered “family”—however “family” may be defined.
The primary role of the Owners Council is to serve as the voice of the owners regarding Shared Purpose, Vision for the future, and allocation of capital. The members of the Owners Council typically include all the owners, but may include only those entitled to vote.
OWNERS COUNCILS ARE Often unFAMILIAR TO BUSINESS-OWNING FAMILIES
For generations, owners have dealt with ownership-related matters individually, perhaps under the assumption that ownership is a “private” matter. Yet, failing to deal with ownership matters as a group, as ownership becomes more complex, gradually weakens the business, and creates openings for family strife.
YOU MAY WONDER WHY YOU NEED AN OWNERS COUNCIL
If the owners of your business are already on your board, or attending family assembly meetings, why would you? Why can’t a forum serve multiple functions, especially when the same people own the business, run the business, and belong to the family?
The reason is that even if the people are the same, the tasks of each forum are different. If you’re familiar with the Three-Circle Model, you’ll see that there’s a forum for each circle (check out our informational video on the Three-Circle Model). Take a look at a brief chart of responsibilities of each forum below, and keep in mind that it is not comprehensive.
BOARD
Set or approve strategy
Oversee the business
Hire CEO and build executive talent
Oversee financial performance
OWNERS COUNCIL
Articulate Shared Purpose
Articulate Vision for the future of the business and Core Capital
Estate planning
Determine allocation of capital inside vs. outside the business
FAMILY ASSEMBLY
Promote good family relationships
Educate family about the business and Core Capital
Mentor the rising generation to become capable adults
Oversee family philanthropy
Business-owning families need separate forums because the conversations that take place in each are quite different. Even if a number of family members sit in more than one forum, the hats they wear in each are different, as are the perspectives. Ultimately, the objective of each forum is to provide a place for its members to come to consensus and speak with one voice on the topics that are within its purview.
If you’re a senior executive of the business as well as a shareholder and a member of the family, you would be a member of each forum. “That’s a lot of meetings,” you might say. “Why can’t we save time and deal with ownership issues at meetings of the board or the family assembly?”
BUT CONSIDER THE CHALLENGE OF PLANNING FOR AND COORDINATING OWNERSHIP TRANSFER TO THE NEXT GENERATION
To accomplish estate planning and ownership succession, owners need an opportunity to explore their options and debate the choices before them. Will shareholders coordinate their plans for their shares, or is each free to do their own thing? How will transfers of control be communicated and prepared for? How will the new owners be brought into ownership decision-making? Should the owners promote opportunities for cross-purchase or redemption? Might there be opportunities to create structures that could enhance governance (perhaps, a voting trust or a private trust company) or liquidity (perhaps, a family bank or a sale to an ESOP)?
Discussing these issues at a board meeting would expose non-owners to confidential information and take up time that otherwise would be spent focusing on business matters.
Discussing these issues at a family assembly meeting would be equally problematic. Estate planning is complex, sometimes arcane, and often involves difficult tradeoffs—especially when it involves coordinating among multiple individuals or branches. While there is merit in educating the entire family group on the basics of estate planning and wealth transfer, discussing the nitty-gritty specifics of ownership succession in the presence of family members that may or may not become shareholders is more likely to foster acrimony than harmony.
But, by discussing these issues at a dedicated owners council meeting, you manage all these problems—you avoid mingling ownership issues with family and business issues, while avoiding problems of confidentiality and conflicts of interest. When you form an owners council, you create a safe place for productive discussions of matters critical to long-term family business success.