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Importance of proper governance in a family business

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The success of a family business revolves around the changing dynamics of not only the business but also the family. Family members may have been dependent on the business for some part of their lives, and may have contributed to the business too. The success of any change in the business depends on the ability of family members to adapt to those changes. When this is brought to practice, the family business moves from an ‘owner-centric’ phase to a complex phase where all family members and the Board of Directors ‘co-exist’.

When a family business evolves into this phase, it helps to implement a strategy to protect the relationships and the viability of the business. This enables good governance within the family business, which is a key to ensure the long-term sustainability of the entire family business ecosystem. Given below are four ways how good governance creates a strong business family:

Let’s consider each of them individually.

Educate the partners of the family business about the responsibilities of ownership.
Owning a company is no easy task. It requires a lot of courage, determination and hard work. The owners, who may have fought a lone battle to bring the business to its current state, must visualise how the family relationships and non-family members’ relationship with the business could be made easier with the introduction of a proper decision-making process.

Prepare the young family members for the future.
Succession planning includes building up the successor to take over the company as well as the existing CEO (or any other senior manager for that matter) to step down within the targeted time. With the introduction of self-governance to the family business, the owners start to think of the big picture rather than bringing emotions into the decision.

Share and celebrate the personal and family milestones.
A family business grows mainly around the family members. Hence, their success or failure will have a major impact on the business. If a family member who works at or owns the business achieves any educational, professional or personal milestones or if the family reaches a milestone, it is important that the family gathers around them to celebrate their success.

Helps in identifying the strengths and weaknesses of the family business.
There are different growth stages in a business. When passing these stages, the business will discover various weaknesses and strengths that may be unique to that particular business. Such identified weaknesses should be eliminated whilst the strengths need to be upheld. This can be done by adopting the right governance structures at the right stages, especially with regards to the human strengths and weaknesses.

Now we know that having a proper governance structure in place can be very helpful for a business in the long run. But, how to set that up? The Family Governance constitution covering the following elements could be an ideal way to attain this:

When setting up these frameworks, always keep in mind that you should be making firm, fact-based decisions with empathy, rather than procrastinating or basing everything on emotions.

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