Family meetings part of good governance

by Mary Beth Matteo, Founding Director of the S. Dale High Center for Family Business

Family Meetings are one of the first steps in building strong governance. Family constitutions, mission statements, as well as succession and ownership plans, are all outgrowths of effective family meetings.
According to John L. Ward, luminary in the field of family business, there are ten reasons to hold family meetings:

l. Build a stronger family

2. Build a stronger business

3. Plan for the future ownership of the business

4. Plan family participation in the business

5. Help children manage inherited wealth

6. Open up the succession process

7. Preserve family values, traditions and history

8. Professionalize the business

9. Manage relations between family and board of directors

10. Recognize and resolve conflict

Look for more information next week: key questions to ask in a family meeting and whether or not you should use an outside facilitator.

How family charters get you off the hook

by Mary Beth Matteo, Founding Director of the S. Dale High Center

Many family business leaders don’t like the idea of written rules because they seem too confining and rigid. But the conflict that arises when there are no rules creates ambiguity and distrust. Consider these two cases:

Story #1: Two brothers, Jack and Sam, each have a child in the family business. Jack’s daughter, Joanne, has just earned an MBA from Wharton and hopes to become the CFO some day, maybe even president. Sam’s son, Rick, is manager of operations, has worked in the business his entire life, and according to his father, has shown more commitment than his cousin Joanne. The fathers and their children have become enraged about what they consider to be preferential treatment. Rick is getting paid less than his cousin. A job was specially created for Joanne. Rick claims Joanne is getting special treatment, when she has no track record and he does. The list goes on……

Story #2: Mary Jane is the only child of the founders of ABC Corporation and though she is an owner, she’s never worked at the family business. However, Mary Jane’s husband, Walter, became CFO when they were first married and has become an integral part of the business and a part owner. Now, fifteen years later, Mary Jane and Walter are going through a brutal divorce. The family is at each others’ throats over whether Walter should stay, how they can buy him out if necessary and whether he should have claim to company assets. The list goes on……………
It’s vitally important to define the rules of the game before the game begins. Not in the middle. Family constitutions are a good place to start and typically include things like family employment policy (compensation, rules of entry, etc.) and ownership policies ( buy-sell agreements, prenuptuals, etc. )

Sum and Substance: to use an analogy, imagine the Colorado River. If you take away its boundaries—the Grand Canyon—the river becomes nothing but a big messy puddle! Boundaries cannot be too tight because people will rebel. Or, too loose, because people will feel like there’s no one at the helm. But a river with good boundaries flows smoothly and reaches its destination.

quote of the week . . .

“The intent of all governance tools is to enhance the capability of the family business system to produce distinctive resources for competitive advantage by driving ambiguity out of the system. This will specifically improve the system’s ability to generate high levels of trust.” 

-- Bill Alexander ”Good Governance: Impacting Your Bottom Line”

The three responsibilities of a Board of Directors

by Gale Martin, Director of Marketing and Membership at the S. Dale High Center for Family Business

Blanching at the thought of instituting a Board of Directors for your family business? You're not alone. Many family business executives don't like the idea of empowering a group of people who'll now make decisions the chief executive is fully capable of deciding him- or herself.

According to Bill Alexander, the May presenter at the S. Dale High Center's Educational Seminar Series, such a concern may be unfounded, that there are three (and only three) functions of a Board of Directors for a family-owned business:

1. Ensure the company has a clear direction (approving strategic and annual plans).
2. Ensure assets are properly employed to the benefit of shareholders (approving human resources plan and capital expenditures).
3. Ensure there is empowered and competent leadership in place (electing officers).

Now that sounds like a reasonable set of responsibilities for a board of directions--one that supports family business executives without interfering in issues that aren't the board's concern.

Based on Bill's guidelines for boards of directors, have you ever served on a board or staffed a board where directors where given responsibilities outside this well-defined purview of what boards should do? If so, what were the results?

Quote of the week . . .

In a world of uncertainty, our guiding philosophy is: Take Charge. If nobody knows what the future will hold, your vision of how to navigate it is as good as anyone's. The future may as well belong to you."
-- Rita Gunther McGrath and Ian MacMillan, authors of The Entrepreneurial Mindset: Strategies for Continuously Creating Opportunity in an Age of Uncertainty.

A Family Constitution is a great governance tool...

by Mary Beth Matteo, Founding Director of the S. Dale High Center for Family Business

Many family business leaders stop thinking about governance because they associate it only with a Board of Directors. In reality, governance has many aspects to it:

• Family Councils (to facilitate open communication among family members)

• Boards of Directors and/or Advisors

• Family Constitutions and Mission Statements

• Leadership Development for the next generation

One of the most effective and important tools for the family is the Family Constitution, which is a legal or quasi-legal guide on how to put the family’s priorities, values and mission into action. In essence, it’s a blue print for everything the family intends to do. Here are some areas that are usually included:

Owner Commitments, Rights and Responsibilities: might include guidelines for Ownership, Inheritance and Succession, and Personal Development of family members. Even, marriage and divorce.

Finances and Investment: might include who owns assets, stock agreements (buy, sell and exit) who can purchase and sell shares, and how it will be done.

Family Employment and Compensation: generally includes rules of entry, how jobs will be offered to family, supervision/mentoring, and fair compensation.

Check out a sample family constitution, from the Carjaval Family, SMEToolkit.

Sum and Substance: Something is better than nothing in the world of governance! As with the Family Constitution, starting out small and adding sections as you go along is just fine.


Let us know your thoughts in the comments section of this post:

Does your family have a constitution? How has it helped your family?

quote of the week

“Good corporate governance is about 'intellectual honesty' and not just sticking to rules and regulations, capital flowed towards companies that practiced this type of good governance."
--Mervyn King (Chairman: King Report)

So, a board of directors isn't for you? You have options . . .

by Mary Beth Matteo, Founding Director of the S. Dale High Center

What if a board of directors is not for you? Three things usually present obstacles to developing and implementing a board of outside directors: you believe your company is not big enough; it would be very difficult to “staff” a board with the required data; or, your company doesn’t have the funds to pay outside directors.
So, what are your options? The best way to answer this is to look, first, at when a board is most useful. Here are a few reasons to look to outside advisors:

• Your company is embarking on something new, e.g. entering a new market or developing a new product

• You are entering a period of rapid expansion and your company would benefit from the advice of a company that has been through it

• You have faced some major setbacks and would benefit from the insights of a company that has successfully weathered a storm

• Your company is doing strategic planning and could use advisors to force you to think outside the box

You have a couple of choices in lieu of a full board:

• A Board of Advisors, hand-picked to address a particular issue

• A mentor or business advisor, an expert in a particular field

• A consultant

• Peer Evaluation Teams, a carefully selected group of peers, such as one sponsored by your trade association

Sum and Substance: any of these options is a good first step, sometimes an all-important one. However, it’s important to remember that there are certain things only a Board of Directors can do. Only a Board of Directors can guide your company over time. Only a Board of Directors can “take you off the hook” by providing objective standards for your family! Only a Board of Directors can remove the ambiguity from family business decisions, and build trust! These are also important aspects of family governance.