When I'm asked by business families to explain the purpose of family governance, I often tell them a tale of two brothers who are third-generation business owners. For one brother, the purpose of owning the business is to generate maximum profits and dividends. For example, if the company has the opportunity to offshore a back-office function resulting in the elimination of jobs locally, the move makes sense because his measurement of success is financial, which is a fair capitalistic reason to be in business.
The other brother's position is that they're stewards of a third-generation family business, their name is above the door or on the side of the building, and the family is a pillar in the community. Offshoring the team to increase their bottom line at the expense of jobs within the local community is a definite no—that's not what he stands for. The practicalities of this misalignment come to life through the non-family CEO of the business who is left in the middle of this tug-of-war and is hampered in her ability to make a decision, knowing there's going to be an aggrieved shareholder either way.
Though fictitious, the story, for me, brings to life the types of issues that can arise when family members aren't aligned around a definition of success, or don't have a shared purpose—which all relates to dynamics.
Family businesses are unique, with their own competitive advantages, and at the centre lies an important dynamic that connects the family, the business and the ownership. To understand dynamics is to understand how these interconnected groups act—individually and collectively—as well as to understand their attitudes toward communication, decision-making, values and purpose.
The challenge for many family businesses is that any one of these elements can be both financially and emotionally driven. When business is family, lines are often blurred, and relationships at the family level may be impacted by relationships at the business level, and vice versa.
This is where governance comes in.
Governance means adopting fair structures, processes and policies that achieve transparency and organized accountability among the family, the business and the family's wider wealth, in service of the shared purpose. It includes the ways in which information is shared and how decisions are made.
Governance encompasses everything from how a family business wants to be organized as a family and as a business, to the roles and responsibilities of every individual and the boundaries between these interconnected groups. It can even get as specific as what families do and don't discuss at the dinner table. I have worked with families who say once they walk through the front door at home, they don't talk business, while others are happy to have their board meetings during Sunday lunches.
When I'm working with families to develop a governance plan, some of the key questions I address are: Is there a process in place to resolve conflicts? Is there a clearly defined process for hiring, assessing and remunerating family members employed in the business? How do you separate business decisions from family decisions? What decisions are made by management versus the shareholders versus the family?
While the governance structure will be as unique as the family itself, and driven by the level of complexity within the family and the business, it typically involves developing structures that determine roles and responsibilities, developing plans to support effective decision-making, and determining how to manage change that arises from multi-generational involvement or other changes in the business. In some cases, governance involves learning and development opportunities for the next generation, creating a family advisory board, or planning meaningful family meetings or retreats.
Ultimately, I look at governance as a roadmap. Your starting point is your current state, your shared purpose and definition of success is your desired future state, and governance is the road between them. To figure out how to get there, I challenge you to answer: What is your shared purpose? Why do you want to continue in business together as a family? What does success look like for you?
These aren't easy questions to answer, but I know they'll help you on your journey of continued success as a business and a family.
Want to learn more? Contact me and let's talk.