Tuesday, May 10, 2022

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.


  (reposted from 2017)

Wednesday, April 6, 2022

It Takes A Team To Sustain A Family Business

Navigating the organization from where you are to where you want to be is hard.  Knowing where exactly you should be going can be even harder. Family Business succession planning is a process, not a one-time event. Large, publicly traded companies have the benefits of expensive, fiduciary boards providing oversight, expertise, and feedback. Well-funded start-ups and VC- and PE-backed operating companies have private boards with experts helping leadership guide the organization. Many leaders at family businesses and closely held organizations, however, are starving for input from others with outside experience and expertise, with fresh ideas for their organizations. Even the best leaders, leaders who have great vision and skill, are sharpened by the feedback of other experienced leaders. 

“As iron sharpens iron’ a strategic team of advisors sharpens the Family Business leader. (paraphrased from Proverbs 27:17)

 

As businesses grow, leadership and governance need to evolve. As Marshall Goldsmith says, “What got you here won’t get you there.”  What growing organizations and leaders need is an efficient team of strategic experts who are committed to the organization and its leaders. They need a team of highly qualified advisors providing honest feedback, offering outside perspective, and helping leaders navigate the way forward.

 

Succession planning can be overwhelming. Many business owners and leaders, though acknowledging how valuable it could be, too often resist creating strategic teams for a number of legitimate reasons. Sometimes, they don’t know how to get started. Sometimes, they see too many advisory teams that are ineffective or, worse, dysfunctional. Sometimes, they are wary for other reasons: fear of losing control; difficulty identifying and recruiting board members; unengaged or uncommitted board members; uncertainty regarding the cost in both time and financial investment.  

 

One way to get started may be to talk with other Family Businesses that have transitioned the business to the rising generation. Involve your family in these discussions so there is complete transparency in the planning process. It will also be critical to seek support from a management consultant, an accountant, a banker, and a lawyer.

 

A key question as this process is started is: Who will quarterback the process? This may be an outside, non-family, advisor who will be unbiased and will maintain accountability for the process, while the Family Business leader operates the business.

 

What is holding you back from the invaluable advice that will help you drive your organization to continued success?