Family Meetings and Family Governance
EntryFamilies and the Next Generation6 sections9 cited sources
Contents
Brent O’Mara works with business owners and multigenerational families, and for the second group the subject of this entry begins with a room. University of Missouri Extension advises farm families that the meetings in which they set the farm’s strategy and plan its future should be held somewhere away from the farm, so that an operational problem cannot interrupt them, on an intentional and regular schedule rather than only when a critical decision forces one.3 The choice of a room, and of a date on the calendar, is the first act of governance. Everything that follows, the yearly gathering, the elected council and the written constitution, is a way of deciding in advance who sits in that room, what they decide and how.
Three circles and two pillars
The vocabulary comes from business schools. A Harvard Business School professor describes the family business as a system of three overlapping circles, the people employed in the business, the shareholders, and the members of the family that holds a controlling stake, and argues that each needs a defined role and a clear voice: senior management speaks for the employees, the board of directors for the owners, and the family council and family assembly for the family. The board, not the shareholders directly and not the family council, sets the direction of the business, while the family council sets the direction of the family, and the two are expected to coordinate without intruding on each other’s territory.2 The Family Firm Institute simplifies this into two pillars, an enterprise pillar built first as the business grows and a family pillar built later, usually when branches multiply and want a forum, and it cites research on hundred year family enterprises finding that the capabilities on the family side most often determine how long the enterprise lasts.4
The family council against the board of directors
| Family council | Board of directors | |
|---|---|---|
| Who it speaks for | The family, usually one elected member per branch | The owners, elected by the shareholders with legal duties |
| What it sets | Policy for the family: employment standards, family compensation, succession process, ownership rules | Direction and policy for the business |
| How often | A few times a year, for one or two days | Quarterly, with one joint planning retreat with management |
| Size and makeup | Composed to look like the family across generations, in laws, active and passive owners | About five to eight members, a majority of them outsiders |
The assembly, the council and the constitution
The same Harvard professor, writing separately, names three components and prefers the simplest structure that does the job. The family assembly meets about once a year for one or two days and includes every adult family member, in laws included; families decide when children join, and most begin at around age 16. Its business is learning: presentations by family and nonfamily managers, education in reading financial statements, updates on changes in the family and in ownership. A family of fifteen or fewer adults may do its planning there. Beyond that size a family council, typically one elected member per branch and composed to look like the whole family across generations, genders and distances, meets a few times a year to plan the assembly, keep the family informed, speak to the board with one voice, develop policies and scout the family for business talent. The family constitution is the written statement of the family’s vision, values and policies, short or long, and the council drafts the policies that go in it: employment standards for the next generation, career development for family employees, family compensation, the succession process including retirement ages, ownership rules including buy sell agreements, and dividends.1 Treating a family in this organizational way can feel strange at first, the professor concedes, and may take a year or two to grow into.1
The family assembly by the numbers
- length of the annual family assembly, which includes every adult and the in laws
- 1 to 2 days
- the age at which most families start bringing children into the meeting
- about 16
- adults, the size up to which a family can plan and set policy in the assembly itself
- 15 or fewer
- how often a family council meets once the family outgrows that size
- a few times a year
The three farm meetings
Extension educators translate the same ideas for a family that owns land rather than shares. The Missouri publication distinguishes three meetings. Farm operating meetings, daily or weekly, involve everyone in day to day work and give the senior generation a place to explain why it makes the choices it makes, so the younger generation learns by listening. Family business meetings, less frequent but scheduled, involve the family members engaged in the business and its advisers, and take up expansion, marketing, risk and succession. Family council meetings, at least once a year, include everyone in the family, off farm heirs, spouses, in laws, children and grandparents, and exist so that family decisions and business decisions are discussed in the open by people who all have the same information.3 Its worked example is a Missouri farm of 450 owned and 1,100 rented acres, with corn, soybeans and a small cattle herd, three adult children and one son in the operation, and it lays out a first year of council meetings from February to July that moves from the farm’s history to each member’s stated wishes for one, three and five years out.3 A Nebraska Extension educator writing in Farm Progress recommends regular family meetings focused on farm management as the place where every generation can voice its goals, alongside shared decision making in stages and, when needed, a neutral third party such as a facilitator or mediator.6
A first year of family council meetings on a Missouri farm
- FebruaryAll children and spouses hear the farm's current status, document its history and discuss its mission and values
- March to AprilThe family discusses the farm's future, then each member takes about 60 days to consider wanting a role
- JuneEvery member submits the involvement they want in one, three and five years, with their qualifications
- JulyExpectations are compared, adjustments discussed, and employment and ownership policies begun
Who leads the system
Someone has to run the whole, not just the business. A second Family Firm Institute article describes a recurring sequence: a founder who is at once chief executive, chair, head of the family and arbiter of every decision across generations; a professional chief executive who eventually arrives; a modernized board; and a system that quietly loses its center, because the chief executive runs the business and nobody formally runs the family enterprise. The authors trace the gap to the three circle model, which never specified who was responsible for the overlap, and propose naming a chief governance officer to hold three functions at once, guardian of the shared assets, custodian of the family’s values, and leader in the directional rather than operational sense. Their diagnostic asks whether the role is named, whether governance exists on both the business and family sides, whether the institutions would outlive the individual, and whether the next holder is being prepared.5
Chief executive against chief governance officer
| Chief executive officer | Chief governance officer | |
|---|---|---|
| Mandate | The operating company | The family enterprise as a whole, across ownership, family and business |
| Answerable for | The results of the business | The integrity of the system that connects the three |
| Typical holder | Increasingly a professional from outside the family | A retiring founder as a second act, or a sibling or cousin leader on top of running the company |
| Builds | Operations and strategy | Charters, calendars, a council, an assembly and a written protocol |
Why the documents are not enough
A certified financial planner writing in the Kansas City Star argues that financial planning and estate planning, the two elements of comprehensive planning for most families, fail the majority of them when measured against the one indicator that matters, keeping the family and its fortune strong and united across generations, and that families which succeed add a third element, which prepares the children and grandchildren for their inheritance by passing on stories, values and lessons.8 A Nebraska lender who farms with his family makes the same point from the field: transition planning is about aligning goals and values across generations, and even the best estate and transition plan can fail without open communication.7 The New York Times illustrates the cost of its absence with two brothers who inherited equally from their grandmother but were asked to run her charitable foundation together; their relationship had never been close, and the work of making the foundation’s required gifts strained it further.9 Family governance also decides who sits in the room when the subjects covered under what a will does and inherited retirement accounts come up.
Meetings in a care crisis
The structure proves its worth under strain. When an aging parent needs daily help, the siblings described under the sandwich generation have to divide care, money and authority among themselves, and the family that already meets on a schedule has somewhere to do it. Harvard’s advice for families that find the discussions awkward applies there too: hire a facilitator rather than let the structure go unused, because good structures that do not address the right topics are a costly waste of time.1 The guide for siblings covered in that entry reaches for the same device, a meeting with an outside facilitator where tempers may run high. The legal and tax choices that come out of these meetings, from a buy sell clause to a succession timetable, turn on each family’s circumstances and are for qualified professionals to draft.
The family table is also where the smaller gifts get decided. A grandparent who wants to help a grandchild with tuition is making a family decision with tax and financial aid consequences, which is the subject of the next entry, grandparents and college savings.
See also
The Great Wealth Transfer
A reference entry on the research behind the phrase, why the numbers keep changing, where the money goes first, and what the household data can actually show.
The Sandwich Generation
A reference entry on adults caring for parents and children at once, with the survey numbers, the sibling arithmetic and the money conversation.
Inherited Retirement Accounts
A step by step reference on the rules an heir meets after inheriting a retirement account, from the designation form to the last required withdrawal.
Cash Reserves in a Financial Plan
A reference entry on the oldest piece of a financial plan, from the three to six month convention to the surveys counting who has nothing set aside.
What a Will Does
The oldest estate document names heirs, an executor and a guardian, yet it governs only the property that nothing else has already claimed.