You've heard the story: aging founder passes company torch to heirs; shareholders -- once few and now many -- bicker; company suffers and, at worst, is dissolved. To avoid such unhappy scenarios, a growing number of closely held companies are forming multigenerational family councils whose members may or may not be directly involved in running the business. The council provides a forum in which to reach consensus on company and family goals.
"We want our council to help us separate the family issues from the business issues from the ownership issues, and to deal with those objectively," says Andy Brosius, president of Midwest Industries, a $50-million boat-trailer and farm-equipment manufacturer in Ida Grove, Iowa. Midwest is run by four brothers-in-law, each married to a daughter of the founder; a son is the president of Midwest's sister company, Byron Originals. The five families each own 15% of Midwest, and the founder, Byron Godbersen, retains 25%. The family council, formed last year, comprises all first-, second-, and third-generation stockholding family members over the age of 13. The kids, says Brosius, get a clear picture of what will be expected of them should they want to join the company. And Midwest's inactive shareholders -- the spouses -- now have a voice in the company and the information they need to make significant contributions.
For instance, Midwest's chief financial officer plans to teach inactive family members to read financial statements; inactive members will also attend industry trade shows to get a feel for Midwest's position in the marketplace. Eventually, says Brosius, "we want the council to help set objectives for dividends, give guidance to the board of directors, and manage the company's philanthropic donations." Brosius says that the council has been critical in getting "everyone to understand that salary and benefits vary depending on experience, even though we all have the same ownership."
Leslie Dashew, president of the Human Side of Enterprise, a family-business consulting firm in Atlanta, says that family councils can help defuse tension among owner-managers and inactive shareholders whose expectations for the business may be unrealistic. "As they become educated about the business, they learn appropriate ways to give input," says Dashew. "The family council provides a forum for people to be heard in a legitimate way." And mitigates the need to be heard in a litigious way.* * *
Â· Working with the Ones You Love: Strategies for a Successful Family Business is by Dennis Jaffe, Ph.D. (HeartWork, 415-546-4488, 1991, $12.95).
Â· Baylor University's Institute for Family Business will send you a free white paper on setting up a family council. Call director Nancy Upton at 817-755-2265.