Guiding boards. Growing business.

Unity and Growth: The importance of ‘governing’ the family well

Successful family businesses all need to navigate the journey of healthy separation between The Family and The Business. While a growing business comes with its own challenges, navigating these together with the various interest groups and generations while considering everyone’s expectations makes for an interesting journey.

This is not an easy task – and very often fraught with volatile emotions, conflicting opinions, and unexpected tensions. This is perfectly natural.

A significant milestone (and/or T-junction) that all successful family businesses reach – and need to move on from – is the appropriate and healthy separation of The Family and The Business. From this point on, each will take its own road. While these roads may run parallel or diverge over time, both will be protected and sustainable if governed well.

It is from this point that both governance of The Business (a process often initiated) and of The Family (the part often overlooked) become significant. Anticipating this milestone and preparing for it is an aspect of governing family businesses that is often overlooked or left too late.

The Family Governance Landscape

To better anticipate this milestone, it is important to understand the landscape of family governance and to identify steps on the journey to a well-governed family which are found within three primary themes.

Clarifying ‘Shareholding Interests’

Beneficiary considerations include identifying who benefits from the value in the business, who has a say in these benefits and how they can have a say.

Shareholding in many family businesses is held by a legal vehicle such as a trust or family company rather than by

individual family members. These vehicles are set up to benefit the family, grow the multi-generational family wealth and administer this wealth appropriately. This means that there is an indirect link between the actual shareholder and those who ultimately benefit from the value of the shares in the business.

Bridging Family Involvement

Family involvement in a family business seems like something that is simple to manage and resolve. However, if it is not fully considered from the perspectives of The Family and of The Business, it can lead to divergence of expectations and potentially conflict in both.

Pondering Philanthropy

Considerations here include whether to share wealth, and if so, with whom and how.

Furthermore, this is both a consideration internally (what is kept within the family and what is paid for) and externally (whether others benefit and if so, who these are and what form it takes).

Design and Implementation

There are some key elements in designing and implementing a well-governed family structure to facilitate the above and to make this all possible.

  • Family Assembly: This is where The Family and its membership is defined and described. The main question that this needs to answer clearly is “Who as part of the family has a say in terms of the business?”. This can become quite complex as the family grows (especially beyond the third generation) since several factors need to be considered.
  • Family Forum: This aims to address the question of “How do the family members (defined in the Family Assembly) have their say – how do they raise pertinent issues?” The Family Forum defines the mechanisms and the place where family concerns, interests, expectations and opinions can be raised and addressed.
  • Family Council: This is the group that ultimately represents the family to the business. This grouping is established by the Family Assembly at the Family Forum to represent the broad family interests and expectations in relation to the business.
  • Family Constitution: This is where the rules and protocols for all of the above is documented. In essence, this is the ‘rulebook’ for the family in its relation to the business.

Transitioning to Success

Many family businesses are not able to navigate the process of healthy separation of The Family and The Business – especially not on their own, On the other hand, some of the most successful businesses on the planet are family businesses that have effectively navigated this transition.

The advantages of dealing with this proactively – and ideally with assistance from an objective third party – makes good business sense.

Written by Roger Hitchcock – Sirdar Senior Partner and Head of Educate