Benevolent dictatorship models of family governance are popular, often by default. But by the time a family business involves more than one generation, good governance may call for a more formal structure, such as a family council.
With the help of family offices, ultra-high-net-worth families with generational wealth are embracing family councils and benefitting from the formalization of their relationships with one another. A family council can help keep families informed and connected, and more effectively deal with complex issues like succession.
They may go by other names, including family assemblies or even family meetings, but whatever you call them, family councils are first and foremost organizational structures.
“They are more formal, with a somewhat structured forum, inclusive of multi-generational family members,” says Mark Auger, the Montreal-based CEO of Crysalia Inc. “There are periodic meetings and, among many other things, they are an opportunity for family members who are not owners to communicate with the ownership group within the family.”
A family council deals with governance issues such as succession, financial specifics such as compensation and dividend distribution, and self-governance, with rules about how the council itself should work. Meetings are usually held annually, though they may be more frequent, depending on the scope of the council.
Start with one issue
Sometimes, family governance begins in response to a specific need, like managing a shared family cottage.
“We’re going to introduce governance models and concepts to one family that has a large family compound that is shared amongst generations,” says Andrew McQuiston, executive vice-president and senior portfolio manager of Calgary’s West Oak Family Office.
“So it will be, ‘What are the rules of engagement with regards to how this property will be used, how it will be accessed and how it will be maintained?’ In this case, it’s about creating governance around a specific asset, and that may be where a family is first introduced to the concept of governance, and that in turn may evolve into something like a family council.”
Whatever the scope of the council, as Auger points out, what’s key is that everyone who wants to, has the chance to speak. Decisions may be decided by a majority vote, or they may require consensus. Families can decide whether all votes are equal, or whether, for example, a founder’s voice may carry more weight than a grandchild’s.
An annual report
Beyond issues of succession, or management of a specific family asset such as a cottage, Auger outlines five broader functions that family councils may perform to promote excellence in the enterprising family.
Family councils can:
- Promote diversity, fairness and inclusiveness within the family system.
- Provide an opportunity for family members to bond.
- Provide an opportunity for family members to stay informed.
- Serve as a recruitment platform for older generations to spot talents and aptitudes among the younger generations.
- Establish and communicate the rules and procedures for participation in the family council itself, and for participation in any other positions in the enterprising family ecosystem.
Participation in the family council varies, usually depending on the size of the family.
“Family councils can have representatives from each family or they can include all family members,” says Neil Nisker, co-founder, executive chairman and chief investment officer of Our Family Office Inc. in Toronto. “And the family council meetings are an annual report on the constitution, on the family business, on the investments, on the philanthropy and all those things pertaining to the family.”
Six Canadian family-office leaders and the books that energized them
For business families facing generation gaps, the stats aren’t good
The meetings themselves may take place at an annual retreat at a luxury property, with team-building and bonding exercises, recreation, excellent meals and, of course, time for business. Sometimes meetings are facilitated by a trusted professional coach or a family enterprise advisor from outside the family. At the end of the day a family council is as much about the business of family as it is about family business.
Keeping the family together
Mindy Mayman, a partner at Richter Family Office in Montreal, says she regularly recommends formation of family councils to her clients.
“Absolutely. Because the thing we find puts families most at risk is a lack of communication. You know, you can have a tax accountant put together the best tax plan for succession that’s ever existed, and it’ll save the family a lot of money. But if you haven’t created a cohesive family, and you haven’t created a forum to resolve conflict, and you haven’t created the tools to educate the family so they know how to deal with either the business that gets handed down to them, or the financial assets, or a combination of the two, then you start to see people heading off in all kinds of different directions.”
A family council won’t solve all your problems, but it’s a good start.
“You do this because you need to communicate,” says Nisker. “And it’s not just the patriarch or one person just dictating and pontificating; it’s a collaborative discussion, where people ask, ‘How are we going to continue to improve our family’s communications and the family businesses?’
“It’s reporting on investments. It’s reporting on the well-being and the pursuits and roles of children and grandchildren. Communication is very, very important for families with great wealth to succeed inter-generationally.”
“It’s a tool,” says Nisker. “An arrow in your quiver to help your family succeed in the long term.”