When Kelly Zelinsky’s uncle, the CEO of Freeman, proposed formalizing the governance of their global trade show, exhibit and events business, she and other family members initially felt there was no need, since they all got along so well. Still, for the benefit of future generations, they forged ahead with changes that included forming an owners council.
Then came a series of tests for the business, including the COVID-19 pandemic. As the shutdown of events stretched to 16 months, the family faced difficult decisions.
“We decided we just wanted to live to fight another day,” says Zelinsky, who is chair of the Freeman Family Owners Council. “We went from approximately 6,500 employees to just north of 1,000 almost overnight. We sold a lot of real estate. We consolidated warehouses and developed a more regional model.”
Through that rocky time — and through other decisions about the direction of the business — the owners council and the more formalized governance structure helped the family stay both focused and united.
“It was the best thing we ever did. As a family that has always gotten along and was raised to not rock the boat, we had some roles and guidelines to fall back on,” Zelinsky says. “And it’s really benefitting us right now. We’re in an era where we are family-owned and -operated. But we may not be family-operated in the future, so we are developing the structure to enable us to operate under either scenario.”
As the Freeman story shows, an owners council can be a stabilizing force for family businesses. But to be successful, families need to ensure close coordination with other governance groups, such as the family council and the corporate board, and customize the workings of the owners council to fit their specific circumstances.
“The owners council serves a very specific purpose: to deliver to the board of directors a concise, clear, aligned message about the owners’ vision for the company; its desired impact on the family through dividends, growth and family employment opportunity; and the values by which the company comports itself both internally and externally,” says Doug Baumoel, founding partner of Continuity Family Business Consulting. “A key benefit of an owners council is that differences among shareholders, such as risk tolerance and liquidity needs, for example, are hammered out at the owners council setting, not at a board meeting. The board is not a good place to have ownership fights.”
As Katie Strahorn, who along with her cousin, Dalene Blattner, is Clemens Family Shareholder Connections Manager at the Clemens Family Corporation, puts it: “We’re the bridge between the trustees and the shareholders.” The Clemens Family Corproration’s holdings include Clemens Food Group, the United States’ fifth largest pork processor.
A flexible governance tool
Owners councils vary in size, formality, responsibilities and even name — some families use the term ownership council, for example, or other variations.
“There’s no ‘one size fits all,’” Baumoel says.
For a small family whose members live near each other and see each other frequently, it may be enough to have an annual dinner where the focus is on their role as owners.
“Other families require more structure. Maybe one person on the ownership council has a seat on the board, and that’s their conduit for owner information back and forth to the board in addition to shareholders meetings,” Baumoel says. “The bottom line is, it depends.”
Although overall governance may also vary from family to family, owners councils typically fit into the broader governance picture alongside boards of directors and family councils:
- Corporate board: The board governs the business. Experts recommend having a fiduciary board, though some family businesses use advisory boards instead.
- Family council: The family council typically works to keep the family together and aligned — planning gatherings and facilitating communication — and helps define how the business interacts with the family. The family council typically addresses issues involving all family members. In larger families, the family council is a representative governance body.
- Family assembly: A gathering of the full family to ratify key policy documents or receive information or education about the business.
- Owners council: Particularly in families where not all family members are owners, it’s important for the owners to have a way to communicate among themselves and with the board. In contrast to the family council’s focus on team building and family cohesion, an owners council focuses on managing the family’s financial assets. If there are a lot of owners, the owners council may consist of representatives rather than all the owners.
“In my experience, unless families are very sophisticated and large, people rarely have both an owners council and a family council,” says Jennifer Pendergast, adjunct professor at the John L. Ward Center for Family Enterprises at the Kellogg School of Management at Northwestern University.
But having one group serve both functions can bring challenges.
“The goals and priorities of the owners could be different than the goals and priorities of the family,” Pendergast says. “Family councils try to be inclusive. They may include family members at a relatively young age who may not have any ownership yet. They often include spouses. So if you have a major issue, such as selling a business unit, not everyone in that room actually has a vote.”
Managing a range of issues
An owners council can address a range of issues:
- Legal issues related to how shares are held, including shareholder agreements and ownership succession.
- The family’s expectations of the business: Growth? Dividends? Diversification?
- Policies on issues such as family employment.
- Communication with shareholders about the business.
Likewise, the reasons families form owners councils can vary.
“Some families create an owners council as part of a larger goal to improve their governance, perhaps due to conflict within the family,” Baumoel says. “Others see a transition point coming, such as a large cohort of cousins reaching maturity, and want to plan for the future, to avoid a crisis by putting in a structure proactively.”
For the family owners of Marvin, a manufacturer of windows and doors, the seeds of the owners council were planted about a decade ago, when members of G4 started to organize discussions with G3. Now they are looking ahead.
“In 10 to 20 years, there’s going to be about 45 G5s in the ownership pool,” says Chief Marketing + Experience Officer Christine Marvin, a fourth-generation member of the Marvin family who also chairs the owners council. “How do we best communicate with them, create professional and personal growth paths, make sure we’re educating them on Marvin: the business, the philanthropy, the values?”
Today, Marvin’s owners council uses committees — focused on personal and professional growth; education and governance; and communication and relationships — to help build family cohesion.
“Everyone lives in different places now. We come from different parents,” Marvin says. “Staying connected and having those relationships is so important.”
An owners council isn’t necessarily the only way to achieve these goals. Some family enterprises, Pendergast says, have neither an owners council nor a family council. In those cases, the corporate board may reach out to the broader group of owners to gauge their opinion when necessary. However, this doesn’t always meet every family member’s needs.
“Family members can feel out of the loop,” Pendergast says. “An owners council can help them feel they still have a voice.”
The size of the ownership group — and the family — also plays a role in determining when an owners council is needed and what form it should take.
“Any time you have a family business that goes from generation to generation, the nature of it changes as the family tree gets bigger,” Marvin says. “Naturally, things need to evolve.”
But even smaller families should consider owners councils, experts say — though what that looks like for a very small family may differ from a large family.
“Let’s say you have three siblings that own and manage the company,” Baumoel says. “You might ask the question: ‘We own it, we manage it, we’re the CEO, the CFO, and the COO — what do we need all this structure for?’ I would argue that you don’t need a lot of formality in those structures, but you need to be able to put on the owner’s hat and say, ‘We’re having an owners council meeting, so we focus in that meeting on issues unique to ownership.’ When you’re the COO, a family owner, and on the board, the roles get cloudy. Having a forum to think things through from these individual perspectives is useful.”
Coordinating governance
A family with a large operating business — and especially one with investments beyond the operating business — will need careful coordination between an owners council and other parts of its governance. Having clear communication channels and protocols can help prevent overlapping or conflicting work and allows the different groups to support each other.
At Vermeer, a manufacturer of industrial and agricultural equipment, for example, the ownership council is integrated with the family office and coordinates closely with the board. The council meets every quarter just before the corporate board meeting, and the leaders of the ownership council and family office coordinate with the board committees.
“The board members talk about what the family should be aware of, and we tell them what the family just talked about that might be relevant to the board,” says Ryan Agre, vice president of finance and family office. “The board chair determines what should be brought up at the board meeting the next day, and the ownership council chair listens to what the board members have to say and determines how much needs to be communicated out to the rest of the ownership council and to the full family group.”
At custom manufacturing and engineering firm Delta ModTech, Emily Allegra is the director of both the owners council and the Schiebout Family Assembly, a dual role that enables coordination between the two governance groups.
“You could have serious conflict between these two groups,” Allegra says. “Having a representative that can step their feet in both sides can make sure there isn’t an overlap, and it becomes very collaborative.”
Creating documents is another way to prevent misunderstandings.
“We have a shareholder charter that really clearly delineates what everyone’s role is,” Blattner says. The charter is revised annually, and changes are approved by the trustees. “It is a living and breathing document.”
Making the transition
When families form an owners council for the first time — or make significant changes in how it operates — they need to carefully consider who will be on the council, initially and in the future. For example, a complex structure of boards, councils and committees may look good on paper, but the reality is that not all families have enough committed family members to take on all that work.
Another membership consideration: Are there multiple family branches, and should each be represented on either the owners council or the board? Participation on an owners council depends on a specific family’s circumstances. Baumoel recommends that if branch representation is necessary, it should happen at the owners council rather than on the corporate board.
“Each corporate director needs to serve the interests of all shareholders,” Baumoel says. “When you purposefully seat people on the board who have a loyalty or fiduciary obligation to one branch of the shareholders, it can be counterproductive to the corporate board’s purpose.”
When a family council is formed or revised, it’s important to make sure everyone understands the new plan. Family members who are used to simply calling a member of company management, for example, may balk when they are told not to. If the new structure involves moving some family members off the corporate board and onto an owners council instead, they may end up feeling as if they have lost a voice. And if the owners council is new, the board may need to learn how to communicate with the council about meetings or actions.
Finally, it’s important to be patient — changes may not happen overnight.
At Freeman, “For over 80 years, the board was primarily made up of family and our business leaders,” Zelinsky says. “So, the board was basically blessing its own business plans. That worked for us for a long time, but as we’ve grown and have become more complex, our governance structure of majority independent directors and an ownership council has been of paramount importance.
“What we had to learn is that it is our role as an ownership council to let the board know what the shareholders want. Then it is the responsibility of the board to communicate that to management, and it’s management’s job to execute it. While it sounds easy, it wasn’t that easy for us.”
Benefits of owners councils
Families with owners councils find them beneficial in numerous ways.
“If we didn’t have this platform where owners can come together with a system and expectations and boundaries and policies, I think it would create a lot of stress on our business. Employees would feel that, and our family as well,” Allegra says.
An owners council can be particularly helpful when the family enterprise includes more than the operating business — for example, if the family owns multiple businesses or invests together outside of the operating business, the owners council can look at all of them together.
And although the owners council may be primarily focused on family business stewardship, getting the owners together to clarify their priorities can have benefits beyond that.
“It has brought the family together, and it has helped the business in the sense that the family is important to the business,” says Marvin about her family’s owners council. “We’re communicating in an organized way, and we’re preparing for the next generation, which is so critical.”