June 27, 2018
A cursory look at governance paradigms in various corporations reveals that stakeholders rely on the Board of Directors (BOD) to set and oversee the implementation of management strategies in order to achieve the corporation’s business objectives. In like manner, family businesses need to ensure that a unit is put in place to protect the interests of the family and oversee the overall running of the family’s business(es). This is more important for extended families where the regular family assembly may not be as effective as desired due to the sheer size of the family. One of the key pillars of globally acceptable family governance structure that addresses this family business need is the Family Council.
In our previous publication on this series, we defined the Family Assembly as a formal forum where family members/family business stakeholders meet periodically at a designated location to deliberate on various matters as it relates to the family and the family’s business operations. As the family reaches its extended phase and the number of stakeholders in the family business grows, it becomes tedious to have a productive meeting or make prompt business decisions at the Assembly. The Family Council are elected members of the Family Assembly charged with oversight function of making strategic decisions in relation to the operations of the family business. The Council serves as the interface between the business and the family. According to IFC Family Governance Handbook, Family Council is a working governing body that is elected by the Family Assembly among its members to deliberate on family business issues. This article discusses the Family Council and its role in an effective family governance system.
The concept of the Family Council has relatively been in existence for several decades. Many families and communities have established councils informally through a group of people referred to as ‘Council of Elders’, responsible for protecting the family’s or communities’ heritage and managing its properties for several generations. As pointed out earlier, a Family Council is akin to the BOD of companies as both bodies are designed to formulate strategic decisions on behalf of stakeholders and to ensure that the values of stakeholders are well reflected in the way the business operations are carried out by all and sundry.
The Family Council is usually established in the first generation of the business when the extended family reaches a sizeable number. The Council consists of key family members elected by the founder and the adult members of the family as an administrative body to attend to urgent matters as it affects the family. The Council is ideally expected to be a single digit membership relatively sized in relation to the size of the extended family. Council meetings should be held at least 4 times annually. The minutes of the Councils meetings form an integral part of the Family Assembly agenda.
Members of the Council are elected based on criteria such as age, qualification, skill, availability etc. Certain restrictions are imposed by different families in selecting individuals to be included on the council such as the extent of involvement of in-laws, members in the employment of the family, etc.