Running a family business can be a difficult balancing act. In order for a family business to grow and prosper, its needs must be balanced against the demands and expectations of its family members.
This can be difficult if a good governance structure is not in place.
When it comes down to it, good governance is all about open communication, transparency, and decision-making that is effective. It is critical to have an optimal governance structure in place before problems arise to help facilitate this. Business decisions and family relationships can be improved once appropriate governance structures are in place. Most importantly, the risk of major conflict is reduced, which can help your family business grow and prosper rather than flounder.
Your business, like your family, does not stand still; it evolves. Family businesses are unique in that there is an important dynamic that connects the family and the business through ownership, which provides both opportunities and challenges. Strong family values and a purpose that helps you navigate the journey ahead surround each decision you make. MARKEF‘s advisers understand the dynamics of a successful business and collaborate with you to provide tailored advice — throughout your company’s lifecycle.
In business, as in life, families do not always see eye to eye. Family members can have different perspectives and ambitions depending on their role in the business, the family, and as owners. Disputes can paralyze management of the enterprise, endangering ongoing family control and sometimes, the very existence of the business. Trying to manage this sensitive position can leave family business leaders grappling with some or all of these anxieties:
How do we define and separate family and business issues?
Do we have an effective structure for decision-making and communication?
Do our strategic business objectives reflect our agreedupon family values and aspirations for the business?
Times of transition are especially sensitive and it is common for families to have differing views on what the rules governing the business should be. It is far better to have guidelines created when everyone is getting along, prior to any issues that could arise in a family business. Likewise, when a business reaches a size and complexity unsuited to more informal management styles, the time has come to consider a more effective governance structure.
When family business structures or guidelines have been put in place, everyone knows what is acceptable and there is less risk of problems arising. Better governance of a family business can improve business performance and to help satisfy the expectations of all family members.
There are three different areas to consider to create a governance structure that will work for your family and business, the needs of the family, the business, and the ownership. Each of these areas must be addressed if you want to achieve your goals and find the right structural balance. Keep in mind that while the outcome is important, the process of thinking about and agreeing on important decisions before they have to be made is key. While there is no one size that fits all, the following are common leading practices and potential outcomes of good governance within family businesses:
Develop communication channels
Create a family constitution to help resolve future conflict
Appoint an advisory board that includes non-family members
Establish guidelines and policies to help decision-making
Family code of conduct
Understand the risks in your business
Develop a clear strategic vision
Monitor and evaluate key business performance indicators
Implement an effective assurance framework
Board of directors
Develop a shareholders’ agreement that includes management and succession objectives
Establish ownership criteria for family members
Establish an education plan for the next generation regarding ownership rights and responsibilities
Ownership succession plan
While the risk of family conflict can never be entirely eliminated, MARKEF‘s business advisers understand the impact that family dynamics can have on your business and work with you to put governance structures in place to help achieve long-term prosperity and family harmony.