The future of a family business can seem far away when it first opens its doors. The company founder was likely pursuing a dream, a desire to have control over the future, or want to pay the bills.
Times change and a company, like a family, changes and grows over the years. When members of the next generation join the business, the founder may be anxious about the company’s future. They may have questions about succession planning, business strategy, family dynamics, and family governance issues.
Are you questioning what steps to take next with your family business? Read on to learn how a family governance plan can help your business grow for years to come.
What Is Family Governance?
Family governance is the system for family members to make decisions together. They will share common values, like goals, and a clear vision for the future of the family business.
Family governance helps families manage their resources, define roles, and establish individual limits. It will also assist family members with handling competing interests.
Having a plan for family governance helps to resolve problems that would otherwise result in the breakup or sale of the family business. It will help prevent the loss of family wealth and the potential collapse of family unity.
Hold Productive Family Meetings
Family members must understand one another’s strengths, abilities, interests, and communication styles. This understanding will maintain peace and organization in family meetings.
It is also necessary to discover common ground to work for, such as shared values and a shared family goal. When a family creates harmony, they can focus on building company strategies and establish a framework for group decision-making. This will enable transition management of the family firm to future generations.
Board of Directors and Family Councils
Many family businesses worry about how and when to adopt a strong family governance structure. They wonder how to build a board of directors or a family council. Family members want to fix potential issues they can see coming down the road.
They may ask how a family and business governance evolves? When is it appropriate to separate family and business governance? What is a board of directors’ purpose? And, so on. When family members consider these questions, they must realize that the demands of the family might differ from those of the company.
The first board of directors usually consists of members of the family. This can be a problem causing a mix of family and business issues.
In the future, they may consider business consultants to give a different perspective. To better handle specific issues in other areas, they may even split the board of directors from the family council.
In general, a board of directors is in charge of the company’s strategic concerns. It identifies risks and manages continuity planning. The creation of the Board of Directors was to have the owners, customers, and management in mind.
A family council is in charge of overseeing the family vision and corporate charter. The charter defines family compensation and employment rules.
A family council may also prepare future generations to lead. It has the basic goal of fostering and sustaining family cohesion while also promoting the family’s long-term goals.
This balanced division of family business control can help both the family and the business succeed in the long run. A strong family and business governance help provide a family with the best chance to leave a healthy legacy for future generations.
Does Every Family Business Need a Board of Directors?
Although not every company follows the same procedure, there is a general pattern. The family governance structure can change from informal to formal. It can also take the blending of business and family decisions and make a clear separation of the two.
You need a board of directors if your family-owned business is a corporation. If your family business is a limited liability company (LLC) or a partnership, having a board of directors is not required. But, it should be a consideration, as it can be vital to sustaining and developing the company.
The Advisory Board of Directors
Family executives or family board members often disagree. When this happens, it is time to seek the support of a business advisor on your board of directors.
A business advisor can settle matters or help family members change undesirable practices. Business advisors are useful during business growth or when industry trends bring you into new territory. They can also help if growth has slowed and you need a skilled consultant to guide your family through the process.
The Purpose of a Board of Directors
When you know where your family and business are at in family governance issues, it is necessary to consider having a board of directors. The board of directors is a body created to serve the interests of owners, management, and customers.
They assist with strategy and business development. The board serves as the voice of shareholders, advises management, identifies and manages risk, and plans for succession. They also review and understand financials.
What Is a Family Assembly?
The family council may call for frequent “family assemblies” for the wider group. This can happen when the founder considers retirement and the grandchildren mature and begin to have their own families.
These gatherings are a forum for the family council to update the rest of the family on the state of the business. It also acts as a place where the family’s basic values and culture are taught and reinforced.
Children and spouses should attend these events. This will help build and deepen connections with others they may only interact with on occasion. But, there will always be a chance they will have to work with them in the future. So, it would be best to have those connections intact from the start.
Family Business Decision Making Can Be Difficult
It’s challenging to make decisions as a nuclear family. It’s much more difficult to expect agreement from a multigenerational extended family.
It’s no surprise that many family businesses start with benevolent leadership and then turn into a dictatorship. This is a problem that can cause the failure of maintaining family wealth and unity.
Family governance will help to reduce the stress of these issues for you, your family, and your business. Contact us to learn how we can help you transition into a strong and lasting family governance plan.