Three Essential Ingredients Of Family Governance
21st May 2017 David Harland
Excellent family governance has played a key part in successful family firms for generations, and there are three vital ingredients
Its easy to lose direction when implementing Family Governance for businesses, find out three vital fundamentals that need to be kept in mind when doing so.
Excellent family governance has played a key part in successful family firms for generations, as best practice for family businesses it puts in place procedures for a the family to work together as a team within the business environment and has clear structures to minimise and avoid conflict prior to it occurring.
As families and businesses grow, development of family governance structures becomes critical to effectively managing the family wealth and legacy for successive generations. Our experience shows that families can use effective family governance to preserve their wealth and pass values on to successive generations.
The benefits to families of establishing and promoting formal governance structures are clear. Our clients have experienced increased opportunities to enhance communication between family members, reduce conflicts through formal structures, educate the next generation of leaders, preserve the family legacy, and build a shared vision for the future.
1. Giving Each Family Member a Voice
Family governance is, at its core, nothing more or less than joint decision-making. Informally, families practice governance every day and this process is simply designed to formalise those processes and give family members a forum in which to express opinions and their vision for the future.
One of the first questions that come up in this process is that of identifying who qualifies as family. We often encourage families to include extended family members in the process, even down to the teenage members of the family. We’ve found that even family members who are not active in the business make important contributions and families benefit from their insight into family values and the impact of the business on the family group.
2. Defining the Family Mission & Values
One of the most important first steps that we take with our clients is that of crafting a family mission statement that helps the family articulate its purpose, establish shared goals, and identify shared values. One of the major benefits of this process is that it provides an opportunity for each family member to share his or her vision for the family.
A rich and fruitful discussion is one of the goals of this process and the final objective is the creation of a mission that is aligned with your family’s values and will serve as a guiding compass when the path to success grows clouded.
3. Implementing Governance Structures
Families are complex and a number of governance structures have evolved, ranging from simple Family Committees to multiple levels, including Executive Committees, Family Councils, and Assemblies. Part of our role as advisors is to educate clients about the different structures available to them and lead them through a process of determining which entities will help them achieve their goals.
Frequently, the formality and number of structures needed is a function of family size; it’s not uncommon for families to turn to Family Councils to decide broad family issues of succession or philanthropy while limiting sensitive business issues to Executive Committees or Family Boards.
A key issue when evaluating different governance structures is the need to separate the business from the family. The business of family includes planning family meetings, promoting shared values and philanthropy, and nurturing the intellectual and patient capital of the family. The family business focuses on managing the financial capital of the firm as well as ensuring the long-term viability of the business.
A strategy is only as good as your family’s adherence to it. In order to reap the benefits of a family governance system, it’s vital that family participation be encouraged. It’s also important for structures to retain enough flexibility to change with the needs of the family over time. As you embark on the next stages of the journey with your family, consider these essentials and make now the time that you build a sustainable governance strategy for the future success of your family.
About the Author - David Harland is the Managing Director of FINH. He established the company in 1995 using his skills gained through a background in the investment banking industry and wide experience in business valuation. For more information he can be contacted on firstname.lastname@example.org