Fam­ily busi­ness: get­ting the right struc­ture for suc­cess

In my last ar­ti­cle, I talked about how im­por­tant it is to have the right el­e­ments in place to run a suc­cess­ful fam­ily busi­ness. This ar­ti­cle fo­cuses on the de­tails of how to make this hap­pen – namely, adopt­ing the best cor­po­rate struc­ture and fo­cus needed

Business First - - CONTENTS - By Bernard Marin

The key to en­sur­ing fam­ily busi­ness flour­ishes re­volves around three key struc­tures: a Board of Di­rec­tors, a Fam­ily Coun­cil and a Fam­ily Con­sti­tu­tion. All three struc­tures serve to tie the fam­ily busi­ness and fam­ily mem­bers to­gether, along­side their bi­o­log­i­cal, emo­tional and le­gal con­nec­tions and shared val­ues.

The Board of Di­rec­tors deals with the ‘busi­ness of the busi­ness’ and sets its strate­gic di­rec­tion. The Fam­ily Coun­cil deals with the ‘busi­ness of the fam­ily’, de­vel­ops and man­ages the Fam­ily Con­sti­tu­tion and li­aises with the Board via a Fam­ily Coun­cil rep­re­sen­ta­tive. Nei­ther the Board nor the Fam­ily Coun­cil are in­volved in the day-to-day ac­tiv­i­ties of the busi­ness. It is the role of the chief ex­ec­u­tive of­fi­cer, gen­eral man­ager and man­age­ment to en­sure this is im­ple­mented.

The right Board

The Board of Di­rec­tors deals with the strat­egy and longer term plan­ning and de­ci­sion-mak­ing of the fam­ily busi­ness. It should be made up of a ma­jor­ity of ‘out­side’ non-ex­ec­u­tive di­rec­tors, ideally with no more than, say, two fam­ily mem­bers as di­rec­tors.

Like a nor­mal busi­ness board, di­rec­tors should be elected for de­fined terms (three to five years ideally), with the ‘out­siders’ re­spon­si­ble for nom­i­nat­ing re­place­ments. Its de­ci­sion-mak­ing should be by con­sen­sus, so that even if in­di­vid­ual di­rec­tors dis­agree with a mo­tion, they are able to agree if it ben­e­fits the broader fam­ily in­ter­ests. Al­ter­na­tively, some Boards choose to make de­ci­sions by ma­jor­ity vote.

The Board should have pro­ce­dures to eval­u­ate its own ef­fec­tive­ness and there should be mech­a­nisms in place to ex­clude people with con­flicts, or those claim­ing di­rec­tor­ship purely through in­her­i­tance. A di­rec­tor should be nom­i­nated and elected on the ba­sis of his or her con­tri­bu­tion to the Board, and rat­i­fied by the fam­ily share­hold­ers at an an­nual Fam­ily Coun­cil meet­ing.

The Board should also elect its own Chair­man, who should be sep­a­rate from the CEO or GM of the busi­ness. This is a crit­i­cal role; re­spon­si­ble for en­sur­ing the Board op­er­ates ef­fec­tively in con­junc­tion with the other struc­tures around the fam­ily and its busi­ness. The Chair­man there­fore needs to have sat on the Board for at least a year be­fore nom­i­na­tion and should have at least 12 months in the role be­fore ro­tat­ing to the next can­di­date.

The role of the Fam­ily Coun­cil

The Fam­ily Coun­cil should in­clude all adult fam­ily mem­bers, to give them a voice and as­sist them in their per­sonal de­vel­op­ment, while at the same time keep­ing fam­ily is­sues sep­a­rate from busi­ness is­sues.

Ideally, the Coun­cil’s lead­er­ship ro­tates be­tween its mem­bers, with a dif­fer­ent leader ap­pointed at each meet­ing to en­sure each mem­ber takes own­er­ship of the Coun­cil.

The Coun­cil’s role is three-fold: man­ag­ing the fam­ily’s re­la­tion­ship to the busi­ness, mak­ing sure the fam­ily is rep­re­sented on the Board by elect­ing a Coun­cil rep­re­sen­ta­tive as di­rec­tor, and de­vel­op­ing a fam­ily con­sti­tu­tion to un­der­pin the fam­ily’s in­ter­ests and work­ings.

Typ­i­cal Coun­cil meet­ings will see the fam­ily Board mem­ber reporting on the busi­ness and its ac­tiv­i­ties; dis­cus­sion around the fam­ily and its ac­tiv­i­ties (fam­ily of­fice, char­i­ties and trusts etc); and dis­cus­sion on mat­ters in­volv­ing in­di­vid­u­als, such as ed­u­ca­tional mat­ters or fam­ily loans to mem­bers.

The Fam­ily Con­sti­tu­tion and its im­por­tance

An ef­fec­tive Fam­ily Con­sti­tu­tion en­sures long term busi­ness suc­cess and fam­ily har­mony, while avoid­ing bat­tles for con­trol, feuds and lit­i­ga­tion.

It’s best to think of this like a game: par­tic­i­pa­tion is a free choice, there are clear rules and the re­sults are not known in ad­vance. The Con­sti­tu­tion de­fines the rules of the game, cov­er­ing fam­ily val­ues, fam­ily pro­pos­als, ex­pec­ta­tions of man­age­ment and the Board, and the mech­a­nisms of con­trol for man­ag­ing the fam­ily busi­ness. These can in­clude: • how we work to­gether • how we make de­ci­sions • how we deal with own­er­ship is­sues such as share own­er­ship and trans­fer, buy-sell agree­ments and fi­nanc­ing ar­range­ments • how we as fam­ily mem­bers join and work in the fam­ily busi­ness. The lat­ter is­sue can be a tricky one, and needs some de­ci­sions made around how fam­ily mem­bers en­ter the busi­ness, what com­pe­tence they need to show, how they get paid (and how much), how they are pro­moted and how and why they should exit the busi­ness (on re­tire­ment or for other rea­sons).

A Fam­ily Con­sti­tu­tion should be pre­pared for fu­ture gen­er­a­tions, not ex­ist­ing ones – think at least two gen­er­a­tions in ad­vance. Fam­i­lies should also con­sider us­ing a pro­fes­sional fa­cil­i­ta­tor to help them work through the process. This might in­volve es­tab­lish­ing the Fam­ily Coun­cil, hav­ing it meet on a few oc­ca­sions to bed down im­me­di­ate pro­cesses, and then us­ing the fa­cil­i­ta­tor to help it de­velop the Con­sti­tu­tion over a six or even nine-month time­frame.

Gov­er­nance, clar­ity, ac­count­abil­ity – and reg­u­lar­ity

As a gen­eral rule, these mech­a­nisms will only suc­ceed if they are un­der­pinned by good gov­er­nance struc­tures and clear de­ci­sion-mak­ing and ac­count­abil­ity – Fam­ily Coun­cil mem­bers and the Board must fo­cus on these as crit­i­cal to suc­cess. Both the Board and the Coun­cil should also meet reg­u­larly to en­sure busi­ness and fam­ily is­sues are de­bated, de­cided on and the re­sults ex­am­ined to de­ter­mine suc­cess – or the nec­es­sary ad­just­ments made if re­quired. Bernard Marin is the founder and CEO of Marin Ac­coun­tants, a firm spe­cial­is­ing in ad­vice for in­di­vid­u­als, in­vestors and fam­ily businesses. For more in­for­ma­tion, con­tact Bernard at [email protected]­nac­coun­tants.com.au. is the CEO of Marin

Ac­coun­tants.

Bernard Marin

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