Todd Smith
Principal
Balancing the respective needs and inputs of your company Board, your shareholder group, and your independent directors always requires a measured approach that values feedback and places a premium on the values embedded in the company by its founders. A Family Council is an ideal forum through which to give family members a “voice” in the company, but it also adds a new dimension to this balancing act.
Clients often come to us with questions on how to effectively link their Family Council to an existing operating company Board in a healthy and productive way. This can be a particular challenge not only when done in conjunction with building a new Family Council, but also during a Family Council charter refresh or when the Family Council/Board interaction has fallen out of balance.
It is no surprise that this dynamic weighs on the minds of family members as they learn to foster a collective voice, while remaining careful to avoid negatively impacting a well-functioning Board. Conversely, it would not be uncommon for the Board to have reservations about engaging with the Family Council—even with a fully developed charter outlining their planned activities. Well-structured or not, the Board/shareholder dynamic can be precarious, with unforeseen consequences playing out in real time.
There are a number of very practical steps a Family Council and a Board can take to alleviate concerns flowing in both directions and to transition into a new model of interaction:
Create an Annual “Owner’s Plan”
It is an important role of the Family Council to provide the Board with a concise, actionable summary of perspectives from shareholders regarding their values, hopes for the company and its risk profile, and goals for financial returns. This type of input is what your owner’s plan should address—though each family prioritizes input based on their unique circumstances. Building consensus around the content of the plan provides a forum for healthy shareholder discussions; providing it to the Board in a vetted, written form means they can count on it as reflective of the majority of shareholders. Of course, this plan is only one point of data that the Board must take up in its decision-making, as what is desired and what is possible are not always equal. The Board should use the content of the owner’s plan as input for a response to the shareholders, via the Family Council, about where it can and cannot fully meet the shareholders’ desires (and/or what it would take to meet them) and what factors drive their near-team choices.
Normalize Communication
To be successful a Family Council should be the primary conduit for shareholder communications from the Board. More specifically, it is incumbent on the Board to discourage side conversations with individual non-Board shareholders and, if these conversations do occur, to make certain that any content of consequence gets forwarded to the Family Council for distribution to all shareholders. This open flow of communication, as a protocol, builds trust and confidence among the shareholders as a group, in both the Board and the Family Council. It also helps to avoid the perils of broken confidentiality and ensures the fiduciary requirement of all shareholders hearing the same information at the same time.
Encourage Board Involvement in the Family Council Processes
Keeping the Board aware of the Family Council schedule and inviting Board members to participate in various Family Council-sponsored shareholder sessions provides the Board with formalized means of “listening in” and will help reduce the urge to have side conversations. Providing shareholders with access to the Board, via Family Council meetings, elevates the importance of the Family Council in the minds of the shareholders. Likewise, allowing the Board to hear directly from the shareholders, in facilitated formats, gives the Board confidence that the Family Council is doing its best to represent all shareholders when providing input to the Board.
Establish a Family Council Liaison Role Within the Board
Regular communication and interaction is key to a successful Family Council/Board relationship. Assigning a Board member direct responsibility for managing this relationship can go a long way toward building trust between the two entities. A formal liaison can also help shape and make accessible feedback from the Family Council for the Board. When a Board has a Nominating and Governance Committee comprised of family Board members, the liaison can serve as a useful link. In both examples, it remains important for non-family directors to have a strong connection to the Family Council and to the broader family shareholder group they represent. Encouraging this relationship is a key focus of the Liaison role.
Encourage Appropriate Transparency
Information regarding the inner-workings of a Board is not available to all shareholders, nor should it be. But an ongoing conversation between the Family Council and Board regarding what is appropriate for shareholders to hear and how best to get it in front of everyone is also important. As an example—it is not uncommon for Boards to conduct annual self-assessments and/or engage third parties to conduct an assessment on their behalf. While the specific details of such an assessment (particularly as it applies to individual Board members) is not appropriate for shareholder consumption, a brief summary of the assessment and some key findings or next steps based on finding can be.
Avoid Membership Overlap, Encourage Movement Between
All of this should by now make clear that it can be difficult for Board members to serve on both the Board and the Family Council in parallel. Board members are privy to information that is not shareable within the Family Council. Further, Board members have inside knowledge of the dynamics within the Board that can inhibit open contribution to the Family Council conversation. A successful Family Council needs to solicit and synthesize feedback from shareholders without applying the Board filter—knowing the information they bring forward to the Board is only one data point among many that must be considered in decision-making.
It is worth noting that while taking off the Board “hat” can be challenging in active Family Council conversations, encouraging family Board members to join the Family Council after leaving the Board can build significant alignment between the two groups—because they understand how information needs to be presented to the Board in order for it to be useful, but they are no longer constrained by “insider” knowledge and sometimes competing priorities.
Move Family Conversations Out of the Boardroom
When families have no forum for discussion, Board meeting time can be taken up by issues unrelated to the business—family challenges in various forms. Even when a forum, such as a Family Council, does exist, we find examples of family Board members or Family Council representatives using valuable Board meeting time to report out on activity from the Family Council. These types of reports tend to devolve into a focus on “what we have done this quarter” versus “what is important to us as a family,” thus reducing the usefulness of these report-outs to the Board.
We suggest that neither of these activities is the best use of time and focus within Board meetings; instead, make the Family Council the nexus of shareholder conversation and invite the Board into that structure for insight into what the Family Council is focused on. Moving family cohesion kinds of conversations out of the boardroom and into the Family Council will increase the effectiveness of a Board, allowing it to focus on the business without the intrusion of family dynamics. Remember, understanding the wishes of shareholders and their goals for the business is the job of the Family Council; these are appropriate topics for a liaison to bring to the Board in a structured manner that the Board can utilize.