This week, Peter Pagonis, a senior partner who leads Deloitte's Family & Individual Wealth practice in Australia, discusses the benefits of introducing a family council governance structure.

We often hear about how having a family council can be hugely important for family owned businesses. They seemingly bridge the gap between family and business, and in the best cases, manage to simultaneously meet the needs of both.

But what exactly is a family council? And what are the key considerations to ensure they are a force for good?

An introduction to family councils

I would simply describe a family council as a 'representative body' of the broader family.

Communication is often an issue for family businesses, as individuals may not feel comfortable exchanging feedback with each other or may not be used to talking openly. A family council structure aims to remedy this problem, and is an excellent way of providing a comfortable, safe place for everyone to have their opinions and concerns voiced and listened to, and acts as a forum for transparency and communication.

It is also a conduit for communication between the family and the business, and ensures that the family speak with 'one voice' to all external stakeholders.

Typically, family council meetings are held quarterly or bi-monthly, and are attended by all members of the family council. There should always be a clear agenda for each meeting, and it is useful for families to choose a facilitator to chair the meetings. This can either be a family member or a non-family member, however, in our experience, having an independent (non-family) facilitator can be useful when the council is first formed, to help ease the transition into a more 'formal' way of communicating.

Some of the key functions/benefits of a family council:

  •  They provide a structured flow of opportunity to discuss issues in an environment that has representatives from the family
  • They set the tone for 'how things are done' – in the family and in the family business
  • They deliver opportunity for family members to be involved who may not be working in the business
  • They can be used to anticipate issues and discuss challenges – a proactive rather than a reactive measure
  • They provide leadership, direction and a place to set goals for the future
  • They are a place to plan activities, communications, and educate or discuss something that you need a direct answer on

In summary, the family council can get the word out and information back in a very structured way, providing input and output from the family.

Why else are family councils important? 

As I have already touched upon, one of the main challenges faced by family businesses is a lack of transparency, particularly with regard to the involvement of the next generation, where limited clear family rules can lead to disharmony.

Having a family council can help families to minimize this issue, as it acts as a forum in which to openly share and discuss the business with the younger generation. It's vital that they have an opportunity to provide input into the family business and have their ideas and feedback heard to give them a proper sense of ownership. A family council can also provide them with the education and support needed to make informed choices about their future – whether that's tied to the family business or not.

I'm certainly of the view that family councils are one of the most powerful and engaging tools for families to communicate openly and regularly with one another. However, ultimately, the success of a family council hinges on whether family members are actually willing to participate and communicate openly with one another, and on how the council interacts with other important elements in the overall family governance structure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.