Family Governance: Critical For The Sustainability Of A Family Business

Looking around at the fractured state of families in the world today, it is tempting to think of previous generations as the ideal time of peace and harmony. In setting up a family business for multi-generational success, traditions of yesteryear only go so far.  For a family business to succeed both now and with future generations, appropriate governance is critical.

In general, corporate governance is “the system of rules, practices, and processes by which a company is directed and controlled.”  For family businesses, governance should help formalize issues such as ownership, leadership structures, control, conflict resolution, and communication. For many families, the process of developing family governance can be as valuable and educational as the final product.

Governance discussions should begin with agreement on how a family will communicate, debate, resolve conflict, and hold each other accountable.  These conversations take not only a high level of trust within the family, they also require grace and love.  Then, the family can move to creating a family charter describing how the family will relate to each other and to the business.  Along with the family charter, the family needs a strong shareholders agreement that includes, among other things, clearly defined governance structures.  At that point, the family can begin to process additional issues such as management of the business, compensation, training and development of family, and qualifications for leadership roles.  For families who want to build a sustainable legacy, this is just beginning to scratch the surface.  Good governance also requires the discipline to execute and hold each other accountable to that which was agreed upon.

The review and development of good governance for a business family should be a normal part of the life and rhythms of the business.  It is important to recognize that developing these guidelines can at times pull leaders away from daily business operations and can also surface tension between family members. That is normal, and it is a healthy part of the process of developing good governance.  

As family businesses work to develop their own governance, they need to determine what will work best for their family.  Best practices can provide insight and guidance, but what worked for another family may not work for yours.

Remember, the best practice is the one that works for you and your family as you strive to build your legacy.