Special Feature Ruling the Roost
A Brief Guide to Governance in Family Businesses
Susan Hoyle, FBS
“Once the family has identified why they want to continue to be involved in their family business they can organise the business and themselves in such a way as will achieve their version of success.” In this article Susan Hoyle of specialist consultancy, Family Business Solutions, looks at governance in the family business and asks a crucial question – is governance of the family as important as governance of the business?
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trategies that seek to optimise all forms of a family’s wealth – financial, intellectual and social – need to include practical advice on how the business of a family can be well governed.
Since it is impossible to separate a family from their business, discussions about the business will always occur within the family. In a small family these discussions will occur spontaneously, whenever needed, and often take place over dinner, at weekends or on holiday. However, as the family and their business both grow, this spontaneity becomes increasingly difficult, and it requires a bit more thought and formality to create a forum where the interests and concerns of the family in relation to the business can be discussed. This challenge is often met by creating a Family Assembly.
The purpose of a Family Assembly is often a mixture of social, formal and educational.
As a family grows and the demographics become more complex, the Assembly can generate social interaction that will help to create and sustain the emotional “glue”
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that binds the family to each other and their shared investment in the family business. This is important because if the glue that binds the family together is not maintained and instead is allowed to dilute, there eventually will come a point where it is not strong enough to hold the family together – which in turn can impact on the performance of the business and wealth can then be dissipated, unnecessarily.
An important function of the Family Assembly is therefore to identify the “glue”, by identifying why the family want to continue to be involved in the family business. This “shared purpose” or “glue” is the standard against which the family will measure whether or not their family business has been successful.
The “returns on investment” the family want may be singularly financial or a combination of financial and other family reasons. For example:
• Maximising overall return on investment by the family co-investing instead of doing this individually;
• Achieving economies of scale where collective purchasing of services and assets is possible;
• Diversifying the family’s wealth, for example, where it is currently concentrated in an operating business;
• Providing the desired level of financial security for a growing family; each family has their own ideas of “enough” and “too much”;
• Keeping the family together as individual family members grow up and grow apart;
• Educating the next generation about their family’s wealth and role in society.
Once the family has identified why they want to continue to be involved in their family business they can organise the business and themselves in such a way as will achieve their version of success.
The formal role of a Family Assembly can be to create policies that govern areas where the distinct interests of family members can often be the unintended source of conflicts.
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