Q. How big is the family right now?
A. There are probably more than 650 living descendants from John Pitcairn. One of the other things that allows families to stay together over a long period of time is for them to freely associate. So today maybe about 50% of the families are still owners of the Pitcairn multi-family office where over time other family members have gone their own way. I call that free association. That’s very important for the family because as a collective family, many of us still share this phase, many of us share the same philanthropy interest, and it’s important that the business isn’t the only relationship with this broader family.
Q. Six hundred and fifty people is a lot of voices; a lot of different ways of thinking. How do you bring about consensus, especially when there are different generations involved?
A. I really think that family offices, which had been introduced into this family enterprise concept by the second or third generation, is one of those critical developmental issues that family should take on. But you see the complexities. By the second or third generation, [the business must] assuredly move to a board of directors structure to make the clear distinction between management and ownership. The board of directors are responsible for its strategy, for its negotiation between management and ownership, its ability to invest in the future capital… So if the business has a board of directors, what the family needs is its own version of a board, and that is called a family council.
So by the very nature, a family council can be the sounding board, a collective receptor for the diversification, but can understand its connection with the board of directors to try and deal with those issues that are specifically family and should not be in the boardroom. So I think to be able to have a process in place, it says this is specifically to keep the family communicating constructively doesn’t mean that everybody’s going to sing Kumbaya, but it does mean that the family and its system, the enterprise, is committed to best practices. Family councils allow that.
At Pitcairn, today we have had more than 70 family members serve on our family council. We have 13 members on our family council and a lot of people say, ‘How do you get on the family council?’ I say, ‘How do you make sure that you have a steady flow of new interested people?’ We have three-year terms, and they are staggered, so we might have four or five positions at any one point of time coming up, and we keep a list and we work it hard to make sure that the broader family understands that they are all invited and at some point they’ll have that opportunity to serve on the family council. The things that I think that are most important to the sustainability of the third, fourth and fifth generation families are that they’ve professionalized, become more democratic and found a way of taking the diversity and making it a strength rather than something that pulls people apart.
Q. How do you ensure enough diversity in the family council at any given point of time? How do people become part of it? Will everyone make it to the family council at some point of time?
A. Our family council has a charter to describe exactly what its purpose is: to improve family-wide communication, to improve the competencies and skills-sets for key leadership that the family enterprise going forward, to develop the capacity within the family system for qualified family directors of the future for the board, for family trustees, and just better inform client owners. Those may all be very important for this family system to negotiate, to navigate the changes that will certainly happen in the future. We had no females in management or on the board or really involved. One of the benefits of my leadership for Pitcairn—I’ve been with Pitcairn for more than 38 years now—is that I improved the role of women at all levels of our family system. So right from the beginning our family council was gender-neutral, and gender-balanced, so it’s an opportunity for me to benefit from the females in our family system, having respect, having a role and once they had been serving in the family council, it allowed the decision-makers, these trustees, to then start having females on our board and we not only have family members, but [female] independent directors as well.
We started with 13 [members in the family council]. It’s good to have an odd number, so that you can have tiebreaks on important decisions. But my view of consensus all starts with the leadership structure, and we practice consensus but we also, as a fallback position, will use democratic voting structures. So the rule of the super-majority will still be held as far as our corporate structure, but shame on me as a chairman of the board if I don’t get our decisions to be consensual.
Q. I would assume that the family council also has multiple generations.
A. Absolutely. First it was focused on the next generation, giving them a platform so that the senior generation could see them stepping up, stepping up their participation, stepping up their contributions. Because it was so successful, the spouses of the uncles came to me and said, ‘We never had this opportunity, we want to be involved.’ And one of the best dynamics we ever had was, we had grandparents, parents and child from the same branch on the family council together. It was spectacular.
Q. Is that fixed that every family council will have a certain number of members from different groups?
A. No, it’s not fixed. It is a very open system, and it evolves over time. Since 1980, we’ve had nine different family council chairs and one of the things that we did do, as part of our governance structure for the business, is we see that the role of family council chair is so critical that by them being elected by their family council, they will have a board seat at the varsity board-level.
Q. What happens if there’s conflict between family council and the board of directors?
A. Then the family enterprise or the family operating business chair, in this case, me, and the family council chair will go into a room and work it out. Now we work very closely together and I am committed because ultimately they do not have a voting power, but they have a tremendous amount of influence. So shame on me as the executive board chair here, if I don’t find a way of taking what I’m hearing and then negotiating: ‘So this is the business board, this is the family council, how can we work together?’ In a few cases where there has been some strategic questioning about our future and our direction coming from the family council, I take it as a direct reflection on me not being able to communicate better to them as shareholders, for them to understand. So we’ve had a few situations where if there is an issue like that, we’re committed to developing white papers for the positions: what was management’s recommendation, how did the board deal with it and what’s its implication for you as an owner. I take the processes that we’ve used at the board for its operating business and then turn around and say, ‘We have this issue, it’s an ownership issue and we probably didn’t do as good a job as we should have done for the operating business to articulate that to our owners.’ So I’d rather hear about it, do something about it, rather than having it fester.
Q. As the family grows, how do the dynamics of the family council change?
A. We were having the complexity of this growing number of family members, and today I think we roughly have 150 adult family members. They’re not all going to be on the family council, they’re not all going to be on the board, and they’re all not going to be part of management of Pitcairn, but they are important.
One of the expectations if you are one of the 13 members of the family council is that you will have approximately 10 family members assigned to you, where you must take the deliberations of the board (the family council can come to board meetings, audit the board process), but whatever the issue is, whatever we want to communicate, those members of the family council will be provided with outlines and talking points, but they must send an email on a quarterly basis and at least once a year, they must call those 10 and engage them in conversation, so we’re trying to make sure that no one feels left out.
Q. If as a family member, I am not interested in the family business anymore, am I free to walk away?
A. You are.
Q. Is there a process for that?
A. Yes. If you are an owner, and you no longer want to be part of the system, then over time we will find a way of having other family members buy your interest at a very fair price. Fair is very important to relationships, and so we have a very detailed process for determining the value, and we will work with family members so that they have free association. One of the things that makes me happy is, we’ve had some family members who have left, and some are now expressing an interest in coming back. So is your system open and transparent, are the elements of family and business conflicted or are they in fact supporting the family enterprise?
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[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]