Family Businesses - Demystifying governance
17 October 2016
I've attended and led discussions at several events recently, where I've been asked to provide thoughts on what family governance means, how it differs from corporate governance and whether both are required in family businesses.
In preparation for these meetings, I spent some time with a member of my team who is part of a family business, and asked her for her views on family governance and what it means to her and her family. She summed it up in three words - rules of engagement. In essence, how the family interact with each other and the business. She went on to describe their family constitution, which clearly sets out their values and rules and how they also use numerous family governance tools to enable each of them to interact with each other and the business more effectively. A family council, family away days, next gen training and communication platforms like whatsapp, help them remain connected, united and clear in their minds about what they expect from each other and the business. This has helped them to maintain stability and keep the family business going for multiple generations.
Family governance can often be misunderstood and I think in part, this is due to the term being overused and abused within the family business space. As a consequence, it can be dismissed quite easily but in my experience, families going through the process of evaluating how they want to own and manage their business between themselves culminating in the use of tools such as family constitutions and councils is incredibly valuable, and provides much greater focus and stability in their dealings with each other and their business.
The value of family governance is really apparent when dealing with the next generation. A recent publication by Cambridge Family Enterprise, supported by PwC and entitled "Next Generation Success" summarised the collective findings of a decade of interviews with next gen family business members at Harvard Business School's Family Business program. A clear finding from these interviews is that next gens take a lot of comfort and reassurance from there being a strong governance framework in place, both at the family and business level. It enabled them to feel engaged, promoted transparency and lessened their concerns about what the future held.
My next blog will focus on the meaning of corporate governance and how this ties into family governance, but one key learning from this week when discussing this point is that the methodology and tools used within the family business space for family governance can be incredibly helpful for corporate governance purposes as well.
If you have any questions or would like to discuss the themes in more detail, please get in touch.
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