Handshake. Conclusion of the agreement, transaction business people working.

  • Jesús Luna, Partner |

As members of the business community, we are familiar with corporate governance systems and how essential they are for establishing control mechanisms and effective business processes. In the family business model, there is an additional set of family governance practices that serve a unique purpose: supporting a strong communication environment among family members and what they want to achieve together.

Business families have a variety of important roles to play as shareholders, often as operators of the business, and always as members of the family itself. The ties that bind them together are typically part of the family’s heritage, along with a shared purpose and set of values for what they want to achieve together. Family governance plays an essential function in maintaining and strengthening these bonds.

Why are we here? What do we want to do together?

For business families, these are two vital questions.

KPMG Private Enterprise has heard from many family businesses that it was essential to have formal business governance practices in place as their companies grew and matured. The time came when it was necessary to create frameworks and structures, and to implement checks and balances for the business to scale up successfully.

While that business rigor was essential, good family governance practices also needed to be in place to ensure that the family’s purpose remained at the heart of their business – that they could continue to create value for customers, employees, shareholders, their communities and their families and confidently answer the question as to why they are here and what they want to achieve as a family.

How family governance can cross the generational divide

In addition to the growing maturity of their businesses, KPMG Private Enterprise finds that family business leaders are becoming increasingly aware of the impact that the changing demographic landscape is having on how various members of the family view the future of the business and the role they may play in it.

KPMG Private Enterprise and the STEP Project Global Consortium recently collaborated on a research project that includes a co-authored article series that has highlighted the impact of changing demographics on family business practices, including family governance. As part of this research, three important insights were gained about the impact that every generation in a family business can have on its governance practices.

First, senior members of the family have the benefit of reflection. They are able to look back at what they have built and pass on what they have learned during various changes in the family’s approach to the business and the governance mechanisms that have supported it.

Second, next-generation members of the family have a fresh perspective to contribute. Their diverse views can be valuable in helping to address the challenges that the current generation may be facing in both the family and in the business by being exposed to differing points of view.

Finally, and perhaps most importantly, next-generation members of the family have the opportunity to look forward by being involved in co-creating the future family governance practices that they will ultimately oversee.

The key in all of these experiences and perspectives is to create a family governance system that can balance both stability and change. The goal of good family governance is to make sure that family members stay connected and have opportunities to voice their concerns and share their emotions in a professional setting[1]. And an effective governance system should help to prepare the family and the business to deal with whatever lies ahead.

Managing family dynamics

Family dynamics often make conversations challenging, and discussions in family business are no exception. It can be difficult to talk about how the business may need to change and to agree on how to support its evolution from one generation to the next – potentially from a business that has been based on a tradition of ‘trust, informality and implicit rules’ to a new tradition of ‘structure and explicit rules’.

While evolution can be challenging, the value of good family governance systems at every stage of the business outweighs the obstacles. Family business governance is about maintaining the equilibrium between what the business is trying to achieve and what the family wants to achieve. So, in addition to customary corporate governance systems, families in business have the opportunity to build their own unique family governance systems to balance their economic and family-centric goals and translate them into a shared vision for the entire family.

By doing so, they not only protect the assets of the business, but also one of the family’s important assets: its cohesiveness around a core purpose and set of fundamental values.

If you are interested in exploring deeper insights on the subject of family governance and the new multi-generational outlook, I encourage you to read the co-authored article, Creating value through good governance: How to balance what is right for the business and right for the family. I also encourage you to learn more about family business dynamics and invite you to take the Family Business Dynamics Assessment, a complimentary diagnostic tool that helps family businesses uncover insights for a successful family business across six key areas including growth, risk, governance, wealth, transition, and people.

If you are interested in exploring deeper insights on this topic, you may be interested in these additional co-authored articles: “The courage to choose wisely: Why the succession decision may be a defining moment in your family business” and “The power of women in family business: A generational shift in purpose and influence" and "The enduring legacy of business families: Sharing what matters across the generations".

Interested in learning more about how KPMG Private Enterprise can help your family business? Contact your KPMG Private Enterprise adviser or find a KPMG Private Enterprise Family Business adviser.

Footnote

1. Berent-Braun & Uhlaner, 2012; Umans, Lybaert, Steijvers, & Voordeckers, 2020.