Governing the family
Governing the business
Family businesses are the same as any other business in that they need to have a corporate governance structure which deals with how the business is directed and controlled. That structure will depend on factors such as the size, complexity and geographical spread of the business. However, they are different from other businesses in that, as the family grows, a need emerges for family governance, as well as corporate governance.
Whilst corporate governance deals with how the business is directed and controlled, family governance deals with the governance of family members and the relationship between the family and the Board.
Family governance can become particularly important where:
- there are a substantial number of family members who are linked, in some form or other, to the business, whether it be as director, employee, shareholder or the beneficiary of a family trust and
- not all family members are employed in the business and
- the Board is made up wholly or partly of non-family members.
Family Councils – what are they?
An increasing number of larger family businesses have established a family council as a method of governing the family and defining its relationship with the Board.
A Family Council is typically a group of family members who are representative of the wider family. Membership of the Council will vary from family to family, but ideally the Council should be made up of those family members who represent the different generations and/or branches of the family and who represent those who do not work in the business, as well as those who do.
What is the difference between a Family Council and the Board?
The Board is responsible for running the business and for establishing business policies and strategy, whilst the Family Council will typically draw up family policies (for example, relating to who should be employed in the business). The Board might typically provide financial information about the business to the Council and consult with it in relation to certain key business decisions.
The Council will communicate the family's wishes to the Board.
What else does a Family Council do?
The functions of a Family Council will inevitably vary from family to family but typically they might include:
- drawing up a strategic plan or family charter which is then put to the wider family for approval (for example, at a Family Assembly meeting)
- formulating a policy on share ownership, for example which family members can own voting shares and/or can shares be owned by in-laws or non-family executives
- ensuring that the business is carried on in line with the family's long-term goals and "values"
- devising educational and training programmes for the next generation
- establishing clear lines of communication between family members and the Board
How are Council decisions reached?
The idea behind a Family Council is to build a family consensus on how the business should be run. Formal voting should therefore be avoided, if possible. Where, however, a consensus cannot be found, the family will need to consider whether voting is on a one member/one vote basis or in line with shareholdings.
Why establish a Family Council?
Family Councils have been described as the "glue" which binds the family together. They can help to build family unity by bringing together different generations and branches and by making those who do not work in the business feel less excluded. Where the family business is owned by two or more different families, they can also help to bring those families together.
Andrew Drake
Family Business Practice
email [email protected]
tel 020 7591 3352