The peculiarities of family businesses: How to establish a defined and balanced interaction between family and business?

02 November 2017

In family-owned businesses it is usually difficult to see where the family ends and the business starts. Major decisions are made following a conversation at dinner, work posts are created for family members instead of aiming at filling corporate needs, and the lack of established boundaries result in everyone doing a little bit of everything – and these are just a few examples.
 
Informal and unregulated interaction is an unconscious modus operandi in the majority of family businesses. This is caused by the close and trusting nature of relationships between family members; established processes are felt as superfluous, or not even thought about. This can be a uniting element for the family behind the business but it can nevertheless bring confusion, blurred lines and definitely contributes to an overlapping sense of identity between family and company. And as the business and family grow, this can prevent an efficient decision-making process and lead to power struggles and conflict.

How can the family and the business ensure they are organised around each other in a successful and healthy balance?

The solution is the interaction structure, created with the help of two different yet complementary instruments: corporate governance and family governance. 


Corporate governance regulates the activity of the Board towards the business in an objective and precise way: it defines leadership, strategy, culture, risk evaluation, management controls and accountability.

Family governance regulates the family side in relation to the business through addressing the complex and emotional ties that families typically display. Its tools, such as family meetings, family constitutions, family council and family offices define the family values that encompass the business, how wealth is managed and distributed, how conflict is addressed, or how the several voices in the family are heard.

Families are increasingly aware of the importance of defining and organising the family around the business, but there is still a long way to go. It is not a straightforward practice because every family has different needs and therefore requires a different arrangement. Having a “one size fits all” frame will most likely result in a total misalignment between the family’s real needs and the adopted tools; situations where a family asks to see another family’s constitution and reproduce it word for word are not unheard of.

In order to have a successful interaction structure in place, families need to be aligned in the vision for the business and for the family’s future, as well as regarding the values that are going to pave the way. However, this alignment is the result of a matured process, not of an overnight decision. And the governance structure put in place must be a true reflection of the family’s vision and values to allow cohesion that is resistant to time and change. That failing, the structure will crumble under the weight of mismatched expectations and opposing views.

 

Maria | Villax
Profile | Email | +44 (0) 207 213 4868

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