Effective family governance structures needn’t be complex
The structure of the family enterprise is unique: a family, business and ownership system, all linked together by wealth, legal arrangements, employment and emotional bonds. Whatever the size of the business, your family members each come to it with their own attitudes, opinions and objectives.
As the business matures, and the family tree grows, the inter-relationships become more complex. Most family enterprises operate around the concept of a “fair process”, they aspire to create a balance of interests between the needs of the business and the well-being of the family. In essence, governance is the “balance of power” between owners, the wider family and those who manage activities in the family enterprise. Good governance structures encourage families to communicate and work together more effectively and are pivotal to future family business success. Successful families manage not just corporate governance of their business operations but also family governance, laying down rules and guidelines about the family’s roles and responsibilities in their interaction with the business.
Understanding where your family enterprise is today in its development journey is a great starting-point to understanding when more formal frameworks and policies will be key to developing a unified approach to the business within the family. Whilst there is no ideal time to be start, it is much easier to organise governance whilst the family enterprise is young and the family group relatively small.
In the early days of an owner-managed business, a kind of ‘natural’ governance can grow up based on “the way things are done around here”. The danger is that this natural governance is based on unspoken understandings, expectations and assumptions. As time passes and the business evolves, ownership is likely to fragment and assets in the family enterprise will grow and diversify. When this occurs the risk is that the ‘natural’ governance will lead to misunderstandings, mistaken assumptions and unfulfilled expectations – a toxic combination for family run firms! In these situations it is common for family members to blame each other when it is usually a structural issue rather than personalities which are at the root of any conflict.
Clear governance principles can address these problems but creating them can be uncomfortable! It may mean addressing difficult questions or challenging unspoken assumptions to create your policies. Thinking about and preparing for sensitive issues before they become contentious, means that sensible rules, agreed in a calm and unemotional backdrop, will be available when needed.
To build family governance, many families find it useful to set these policies out in a written document, sometimes referred to as a family charter. This sets out the family’s values and vision for the business and it defines their policies on family employment, ownership and succession.
Although much is written about the need to adopt corporate governance structures, family governance requires a more tailor-made approach. There is no one size fits all, a family governance structure must reflect your unique family history, values and culture together with the degree of your family’s involvement. The frequency of your meetings and the appropriate forum is up to you – they might be annual or more frequent but holding them away from family homes or the business premises is often a good plan.
Allowing plenty of time for discussion is undoubtedly the most important factor, so many families opt for a ‘retreat’ style of meeting. Perhaps the most beneficial element of this style of forum is that it allows the involvement of all generations of family members. Younger generations hear the history, stories, values and vision first hand. You will already be nurturing the future talent pool which is your next generation.