What is Family Business Governance? Busting Common Myths.

Our clients often shudder when we bring up the topic of family business governance.

They believe that by installing governance, they will somehow depersonalize their business, or they must give up control.

Nothing could be further from the truth.

Governance is essential for your organization’s long-term success. Good governance will help you increase the value of your business, create better family harmony, and help lead you to prosperity. It will give you more control, not less!

In this article, I hope to dispel these myths, explain what governance REALLY is, and encourage you to embrace the idea of instituting sound best practices around governance.

What is family business governance?

Governance is an umbrella term that represents the power of a sound business structure to help your family business thrive over multiple generations.

Governance means instituting some level of formality, which may be new in some family business settings.

Strong family business governance will include a structured framework for decision-making – clearly outlining roles, responsibilities and authority assigned to all family members involved in the business.

With the right governance in place, your family can have appropriate oversight of how the business is behaving, how it’s growing, how it’s handling difficult decisions and how it’s managing upsets and unexpected market variance.

That’s what governance is all about.

What are the benefits of family business governance?

Putting a governance structure in place helps your family business address some of the most common barriers to prosperity.

Two of the most common barriers are a lack of leadership vision and a lack of alignment about the direction in which the business should drive.

Such a lack of alignment may also mean that your family leaders hold a low level of trust in one another.

A clear system of governance not only communicates an overarching vision, but it also helps ensure that everyone is working toward the same ultimate goals, trusting, and holding each other accountable along the way.

What does family business governance look like?

The key foundations of business governance are structure, planning and meetings.

It’s important to have a clear and accessible strategic plan in place. Depending on your long-term goals, your strategic plan may be for one year, three years, five years or more.

Once that plan is developed, you must have a clear structure and cadence for meeting about implementation progress.

Board of Directors

One of the first steps toward implementing sound governance is to assemble a board of directors.

This is especially important if you have a large and complex family business with two or more generations involved in its operations.

The board’s role is to oversee the effectiveness of the business – and the effectiveness of management in executing strategic plans.

It’s important for the overall health of the business that this board be composed of both qualified family members and qualified directors from outside of the family.

This group typically meets on a quarterly basis.

Once a year, management and the board of directors should inform shareholders about the state of the business, particularly the direction the business is headed in the future. This is also the right time to appoint or reappoint board members, set up various committees, etc.

Family Council

In addition to a board of directors, we also recommend assembling a family council that also meets once a year – usually at some type of family retreat.

This is an essential time for sharing with the family a state-of-the-business summary, along with hosting inter-generational professional development and training.

This annual meeting provides an opportunity to discuss how the family business is delivering on the family’s guiding values, along with how it’s upholding the family brand and achieving the prosperity its founder(s) intended.

The truth about control: the hidden power of family business owners.

It’s important to us at Ferguson Alliance to dispel the myth that putting a business structure in place means the family loses control.

That simply isn’t true.

If you’re the founder/CEO of your family business, assembling a board of directors from both inside and outside of the family doesn’t diminish your voice or influence in the direction the business takes.

Quite the contrary.

The board of directors is chosen by you – and charged with implementing your vision in the most beneficial ways.

This is what we call the hidden power of the owners.

Here are the 5 basic rights family owners enjoy:

  1. Choosing the type of ownership you want.
  2. Structuring business governance to make great decisions together.
  3. Creating an owner strategy to define your success.
  4. Using effective communication to build trusting relationships and dispel fear.
  5. Succession planning to transition both power and responsibility to the next generation.

As you can see, family business owners retain tremendous power over their business legacy, no matter what type of governance structure they implement.

Would you like some support installing or improving governance in your family business?

Our team would love to talk with you about how to implement a sound governance strategy for your family business.

We offer services ranging from board setup to board facilitation and serving as independent board members.

Schedule a consultation call with one of our experienced family business advisors today to learn more about how we can help. Book a Call.

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