Glenn Kurlander, Managing Director, Head of Family Governance and Wealth Education
Conflict in families can be devastating. And all too often, when we total up the costs, the most significant ones are measured not in dollars, but in shattered relationships.
One very wealthy family I knew well was embroiled in a horrible fight over a family trust for more than a decade. The fight snaked its way through one court after another, injunction by injunction, appeal after appeal. The intricacies and nuances of the legal and tax issues made Jarndyce v. Jarndyce look like a mundane matter in small claims court. At one failed settlement conference, there were so many lawyers present (I was the lead trust counsel for one of the two principal combatants) that they could have fielded two baseball teams, and there still would have been guys sitting on the bench, waiting for their chance to get in the game. So it wouldn’t be surprising to learn that legal fees ran to several millions of dollars. That’s not for the decade-long fight — that’s several million dollars each year, year in and year out, for 10 years. But for this family, the financial loss has been the smallest cost. Their vicious fight has turned siblings against one another, children against parents, even husbands against wives. Family civil war.
All families fight, and conflict in families is inevitable. And conflict isn’t necessarily bad. The opposite of conflict isn’t agreement; the opposite of conflict is no conflict. And sometimes there’s no conflict because people are apathetic — they don’t even care enough to fight. Conflict at least demonstrates engagement; under some circumstances, apathy can be worse than conflict.
But conflict needs to be managed — one piece of the larger process called family governance. Perhaps the most frequent truth I’ve observed from my work with families is that they tend to be much less strategic about their planning for their families than for the businesses many of them own or run. In fact, they tend not to be strategic at all. But there’s a lot that families can learn from well-run businesses. One way families can try to govern themselves more effectively is by becoming more strategic about how they make decisions. Many families find that the first step is to create a normative framework within which to decide significant questions — a framework called a family council. The use of a family council is one of the things we can learn from well-run businesses — it’s a kind of board of directors for the family.
There’s a lot wrong with the way we tend to make decisions. The biggest mistake we make is that our decisions appear to be made ad hoc. Sometimes that’s just a matter of appearance, and sometimes it’s the reality. But whether reality or mere appearance, and even if from some objective vantage the decision can be shown to have been the right one, because it appears to have been made ad hoc, it is less likely to be respected.
That shouldn’t be surprising. After all, ad hoc decisions are more likely to be infected by personal animus or other improper motive. By definition, they’re not deliberative. And they’re not consultative. For all these reasons, they’re less likely to be respected. And the first critical component of effective family governance is that decisions be respected. That’s where family councils can make a huge difference — they attempt to make decisions by following a normative process, and they seek to act strategically, deliberatively, transparently and consultatively.
When a family council makes decisions that way, and does so over a period of years, the council becomes invested with increasing moral and persuasive force, until the authoritative impact of the council becomes almost unquestioned.
A family council can be made up just of family members, or it can also include nonfamily members. Sometimes the presence of outsiders, such as trusted advisors, affords an independent perspective that the family finds helpful. And the presence of outsiders at times can result in better behavior. (Sometimes the presence of younger generation family members has the same effect — we often try to be on our best behavior in front of our kids.)
Councils deal with just about anything that the family finds important, in just about any sphere of the family’s life. So they can address business issues, questions relating to family investments, issues relating to the management of trusts, philanthropic issues, and any of the issues that exist at the intersection of any two or more. Should descendants work in a family-owned business? If so, should they be required to have outside managerial jobs first? How does the family measure and value the contributions of descendants who work outside the family business? How does the family balance ownership, control and management?
Creating a family council requires that the family give significant thought to the council’s structure, membership and operations. While the subtle variations in structure can be infinite, in gross terms, there are two basic structures for family councils: one in which every member (perhaps after attaining a specified age) has a vote on every issue, and one where the members elect representatives who ultimately cast the deciding votes on the issues before the council (or where representatives attain their posts in some fashion other than election). In short, the former is a true democracy and the latter is a representative government. Obviously, the democracy allows for greater participation, and perhaps greater acceptance, but some families find it somewhat unwieldy as the family grows. Some families transition from democracy to representative government as the family matures, the council becomes more practiced and secure, and it builds a track record of effective decision-making and deep acceptance.
Apart from structure, another big question is membership: Who will be on the council? Descendants of course, but at what age? Many families have had success with a tiered structure, pursuant to which descendants begin to attend council meetings as observers at one age (for example, 18) and become full voting members at a later age (say 21).
The other big membership issue is spousal participation, and for some families, it’s the hardest one of all. Of course, there’s no answer that’s right for every family, and full spousal participation has advantages and disadvantages.
On the plus side, enabling spouses to be full participants may foster a spirit of openness and family cohesion. It may also encourage spouses to express their views directly through and to the council, rather than privately and in dysfunctional ways (for example, by seeking to create divisive and destructive alliances with the descendant spouse against other family members). And full spousal participation recognizes the contribution that in-laws make to the culture of the family, as spouses and parents, and it is often awkward at best to have meaningful conversations about the needs of family without including them. Indeed, the decision to exclude them has the potential to create problems where none exist.
On the other hand, some families decide that the potential for free and unfettered discussion is enhanced if spouses participate in only some deliberations, or at the extreme end, if they do not participate at all.
And the last big question is operational. How are decisions to be made; that is, will actions of the family council be determined by a majority vote, or must the family council act by consensus? While consensus decision-making is very difficult, it is the most powerful and unifying way for families to make decisions.
The best advice I can give is to start out slowly and modestly. The family council controls its agenda, so begin with matters that are relatively easy and — to the extent possible — not emotionally charged. Practice on the easy ones, get them under your belt and build a record of success.
Gradually and over time, the success of the family council becomes self-perpetuating and reinforcing, until the council gets to the point where it assumes an extremely powerful place in the ethos of the family. It can become not only the vehicle by which to manage family conflict — as important as that is — but also the family’s chief organized forum within which to articulate and implement the family’s values, mission, vision and goals, and to educate and mentor the future leaders of the family. In short, the family council can be a robust and vital family institution, the repository and steward of the family’s culture and the engine of the family’s future success.
Would a family council have avoided the family civil war I talked about at the beginning? We’ll never know of course, but I think there’s a good chance it would have. That’s because when the family made the decisions that ultimately gave rise to the fight, they had no way to make them that the entire family would have respected. If those were the first decisions the family council had to make, then maybe the result would have been the same. But if they had been made by a council that already was a respected family institution, the result might have been quite different.
Glenn Kurlander, Managing Director, Head of Family Governance and Wealth Education