Is it time for a family meeting? Yes, for most firms

Maybe a sister is envious of her brother because he’s in the business and gets certain benefits but she does not. Another relative works in the business but has no control or influence. A spouse wonders whether she can have a voice in the company’s direction. And a future son-in-law wonders if he will ever have an opportunity for a seat at the table.

Whether or not they are involved daily in that business, a family business does affect the entire family. Yet many business owners of privately held companies do not usually consider the thoughts of other family members – until it’s too late. That’s when “downstream decisions” made about succession, ownership, bonuses, profit sharing, and hiring family members can create bad feelings and years of undesired consequences.

Bringing multi-generations together to make family business decisions more straightforward, less painful and much less traumatic is possible through a structured and facilitated approach called a family council. Although not a new concept, the need is growing. According to PricewaterhouseCoopers, there will be a leadership change in 12 million privately owned U.S. businesses over the next 20 years, with an ownership change in 9 million of these businesses. This represents a huge opportunity for either trauma or satisfaction.

Two realizations

A family council is more than a reunion but less like a board of directors meeting. It’s a purposeful family business conversation about real issues impacting the family. Before it can be formed and succeed, there are two conscious decisions that must be made in the mind of the owner:

First, be open to outside influences and ideas about business transition, such as an outside adviser, executive roundtable or professional association. Too many owners isolate themselves from receiving input from others. They aren’t used to taking direction, but they need to realize transition will mean giving up control and letting others help make decisions.

Second, expect that transition is imminent for the family business. This can happen gradually as fatigue sets in with aging and/or the younger generation’s interest in the business changes. The family council concept works best if initiated by the owner before a sudden event occurs (death, illness or divorce) or the younger generation’s window of opportunity to enter the business closes. Like 12-step programs, awareness of the need for outside help in making decisions helps the owner take the next step.

Lack of communication and a clear plan for succession are the key reasons why 70 percent of family-owned businesses do not achieve success into the next generation. A family council sets the stage to address both of these issues and eliminate years of unhappy drama that occur with perceived inequity or unfairness among family members.

The family leader needs to initiate this communications effort with a positive announcement that invites all family members to a place and time that is convenient for all. Some family council guidelines to consider:

1. Inviting spouses is recommended to eliminate “pillow talk” among in-laws. Being present for tough discussions and decisions clarifies how all family members think and feel about key issues. For example, if the family agrees that married spouses cannot work in the business or receive voting shares, it is better for those members to be in the room to hear the discussion and reasoning behind such decisions.

2. The agenda should be based on clearly identified issues, such as long-range vision for family ownership, requirements for family member employment, role definitions, philanthropic giving by the business, stock ownership, next-generation trusts, succession planning and education funding. Most family council meetings are held at a destination that provides recreational amenities, and family time shared among the generations is a big win for all. Each day has an adults-only business meeting of short duration (3 hours) with food and recreation.

3. Set or clarify a vision for the business. All family members should have a current understanding of why their family chooses to continue owning the business. Everyone can contribute to this shared understanding, whether or not active in management.

4. An external facilitator for the council is important as a neutral person who will keep the process on track, ensure good advance preparation and keep participation even among all.

5. Each council should meet at least once per year. The prevailing pattern is two meetings a year: one in the temperate, Minnesota months and another in a warm location during colder times. More frequent meetings are common when just getting started, or when challenging issues need to be resolved.

6. For more smooth and orderly meetings, ensure there are few outside distractions such as phone calls or babies demanding attention.

Enabling transition

Here are recent examples of how family councils helped move two businesses forward in transition:

•Family discussions about a successful early childhood education business shifted from casual talk at the cabin to a facilitated family council that strongly affirmed ownership continuing into the second generation.

Despite a surprising change of interest among two of three siblings, the agreements reached as a family enabled the founder (Mom) to proceed enthusiastically with a sabbatical. Time away from the business allowed her to gradually transition from day-to-day manager into owner status. A non-family successor is now leading the business forward.

•Thirty years of owning, managing and funding a successful precision machining business was enough for its owner. The founder decided, with his wife’s support, to move ahead with exit plans. Yet how would this impact their two children? Through a family council, both generations were able to communicate personal and family intentions.

A son remains non-involved in the family business, but strongly supports succession to the second generation with his sister becoming majority owner and leader of a team of managers with non-voting equity shares. Seller financing has enabled a change of ownership that is workable if the business continues for five more years doing what it has done for the previous 30 years.

Steve Coleman:
952.829.5700
steve.coleman@theplatinumgrp.com
www.theplatinumgrp.com