When you think about the long-term success of your family business, what comes to mind? Do you think of growth, profitability, or perhaps innovation? While all of these are crucial elements in the success of any business, there’s often one piece specifically related to family businesses that tends to get overlooked: governance.
In family-owned businesses, the stakes are high. Balancing the pressure to succeed and maintain family harmony can be challenging, yet, it’s possible, with the right governance structures in place.
The Importance of Governance in Family Business: Why It Is Essential for Success
In a family business, personal relationships often shape business decisions, while business decisions can affect family dynamics. This dual impact can create conflict, especially as the business and family grow. This is where governance becomes crucial. Governance is the system and process of how decisions are made, roles are defined, and responsibilities are established.
When you have clear governance systems in place, they become the blueprints for growth. A sustainable family business is organized in its decision-making. When there is a system in place, there is less room for conflict to arise as decisions are being made by an agreed-upon process and not by a single person’s opinion.
Common Challenges Facing Family Enterprises
Blurred roles and responsibilities are common issues we see in family businesses. Wearing multiple hats is great if you need to stretch your skillset and scope of work, but this becomes a point of tension when overlap and confusion occur over who’s responsible for what.
Another common challenge is when family and business matters mix. Without clear boundaries, personal emotions can cloud business decisions. You can’t teach an old dog new tricks and the young one doesn’t have any respect for tradition. That’s what they say, right? As younger family members enter the family business, tensions can arise with the older generation. Changes in leadership positions are inevitable within your family business, but planning for them can be a challenge without proper governance.
Foundations of Successful Family Business Governance
For governance to be effective in your family business, it needs to be built on a strong foundation. There must be a shared mission, vision, and core values that all family members can rally behind. Defining roles and decision-making processes is also vital. By creating formal structures, such as a family constitution or family charter, you can codify expectations. A family council or governance board with regular meetings for open dialogue can be established to proactively address issues before they arise.
Strengthening Family Bonds Through Governance
Governance extends beyond the family business and into personal relationships while strengthening family bonds. An effective governance system will foster trust and transparency. With conflict resolution guidelines, shared responsibilities, and anticipated accountability, governance promotes respect. When everyone feels a sense of ownership and has a seat at the table, is when you’ll discover the most success in your family business.
Five Actionable Steps to Implement Effective Governance
Creating an effective system for governance within your family business is one of the most essential pieces of long-term success. At the same time, this system should also recognize and encourage the strength of the family at its roots. So where do you begin if governance isn’t currently one of your family business’s footholds?
Conduct A Family Governance Audit
Before jumping into a plan, take a moment to look around and assess the current state of your family business. How do people communicate? Are decision-making processes in place and clearly communicated? Are family values visible and shared amongst members?
Engage Professional Facilitation
Working with a neutral third-party consultant like us can help guide and develop your family governance plan. From an outsider’s perspective as someone who is not related, but whose purpose is to help stabilize and grow the business, we have the expertise to help.
Develop a Family Charter or Family Constitution
Write a document to outline your family’s mission, vision, conflict resolution process, and succession plan. This should also detail how the family and business will work together in processes like decision-making and assigning roles and responsibilities.
Schedule Regular Family Council Meetings
By developing a schedule for regular family meetings, the governance structure can be reiterated, discussed, and even changed as necessary. This process helps ensure everyone is on the same page and has a voice in the governance system for a sense of unity and purpose.
Review and Adapt
If something isn’t working for you and your family, make the necessary changes. Governance is an evolving process meant to be reviewed and revised periodically.
With the right governance structure, families can preserve harmony and set the stage for future generations to thrive. At Positively People, we help family businesses build that structure—one step at a time. Learn how governance can transform your family business. Schedule a consultation today.
