As families and businesses financial capital 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, develop leadership 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 including the teenage members of the family. We’ve found that family members who are not active in the business make important contributions and families benefit from their insight into family purpose and values. They also can provide a perspective that is independent of any role others may have inside the business.
2. Defining the Family Purpose
One of the most important first steps that we assist our clients with, is helping 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 her or his 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 purpose that is aligned with your family’s values and will serve as a guiding compass when the path to success grows clouded.
3. Pragmatic Approach to Implementing Governance
Governance is about accountability, transparency and, if all else fails, having a framework for the family to find a way through the complexity. – It is, after all, the family harmony that has the greatest impact on family wealth. Suitable family governance drives better decision making and better decision-making drives family alignment and financial success. We use the simple expression – “Encourage the Dog to wag its own tail.”
Yet governance itself need not be incredibly detailed or oppressive. In fact, the best governance for a family is likely to be less tight than that between business partners or third-party shareholders. With a business that is tied so closely to a family which itself will continue to evolve, the demand for flexibility is high, whilst maintaining a core purpose. For this reason, the focus, initially at least, should be on non-binding family policies that answer family questions on desired levels of stewardship and therefore agreeing to family policies like employment of family members or matters of corporate or investment governance. For example, maybe some roles will require persons external to the family with expertise not found in the family.
One thing is for certain, once you start the conversations, facilitated by an independent expert, those conversations will bring about the clarity and alignment across the family. Remember it is that clarity and alignment that builds family harmony ……… makes for better decisions …….leads to financial success.
Excellent Family Governance has played a key part in successful family firms for generations. It is those families who control one or more Businesses “Families in Business” that typically seeks out this best practice. Family governance is a framework for the family to plan and lead together as a team, separate to, although in the context of managing the family financial capital.
Family Business Facilitator-Consultant
The Family Business Governance and Directorship Online Course is designed to provide you with the knowledge and tools to take the necessary steps towards ensuring you have sound Governance in your family business and those directors understand their roles and responsibilities.
Written by David Harland
David Harland | FINH
A leader in the family business consulting field and Executive Chairman of FINH, co-founding the company in 1994, David is an expert consultant to families in business. David has facilitated multi-generational meetings of family business stakeholders to guide families through complex and emotional family communication challenges. His objective is to empower those families to long-reaching and sustainable communication processes across both family and family business communication models.
The views expressed in this content are those of the author, who is also responsible for any errors and omissions. Family Business Australia and New Zealand provides this article for your information only. The content of the article should not be taken as advice. If you wish to explore this topic, please consult an advisor who you consider to have the expertise to provide specific advice in relation to your family business.