How to build unity effectively in your family business…
PUBLISHED: 17:12 19 April 2016 | UPDATED: 17:12 19 April 2016
Norma Stewart, head of Family Enterprise at Wellers, explains why good governance structures encourage your family to communicate and work together more effectively.
The structure of your family business is unique: a family, the business and ownership system, all linked together by wealth, legal arrangements, employment and emotional bonds….
Whatever the size of your business, your family members each come to it with their own attitudes, opinions and objectives. As the business matures, and your family tree grows, the inter-relationships will become more complex and challenging for you. Most family enterprises operate around the concept of a “fair process”, they aspire to create a balance of interests between the needs of the business and the well-being of the family. In essence, governance is the “balance of power” between owners, the wider family and those who manage activities in the family enterprise.
Norma Stewart, head of Family Enterprise at Wellers, explains why good governance structures encourage your family to communicate and work together more effectively. That makes them pivotal to future growth because successful families manage not just corporate governance of their business operations but also family governance. Governance structures work whereby rules and guidelines are established about the family’s roles and responsibilities in their interaction with the business.
Where is your family business at?
Understanding where your family enterprise is today in its development journey is a great starting-point. That way you’ll understand when more formal frameworks and policies will be needed to develop a unified approach to the business within the family. Whilst there is no ideal time to start, it’s much easier to organise governance when the business is young and your family group is relatively small. In the early days of an owner-managed business, a kind of ‘natural’ governance can grow up based on “the way things are done around here”. The danger is that this is based on unspoken understandings, expectations and assumptions. As time passes and the business evolves, ownership is likely to fragment and assets in the family enterprise will grow and diversify.
When this occurs the risk is that the ‘natural’ governance will lead to misunderstandings, mistaken assumptions and unfulfilled expectations – a toxic combination for family run firms! In these situations it is common for family members to blame each other when it is usually a structural issue rather than personalities which are at the root of any conflict.
Why you need governance structures
Clear governance principles can address these problems but creating them can be uncomfortable! It means a member of the family taking the lead on this issue and starting out by addressing difficult questions or challenging unspoken assumptions. This might perhaps be achieved through a facilitated discussion with the aim of creating your policies off the back of it. Thinking about and preparing for sensitive issues before they become contentious, means that sensible rules, agreed in a calm (unemotional) environment, will be available when needed. To build governance structures, many families find it useful to specify these policies in a written document, sometimes referred to as a Family Charter. This sets out the family’s values and vision for the business and it defines their approach to family employment, ownership and succession.
Developing your Family Charter and establishing a Family Council
Although much is written about the need to adopt corporate governance structures, family governance requires a more tailor-made approach. There is no one size fits all. A family governance structure must reflect your unique family history, values and culture together with the degree of your family’s involvement. The occurrence of your meetings and the appropriate forum is up to you – they might be annual or more frequent but holding them away from family homes or the business premises is often a good plan. As your family enterprise grows beyond the owner managed phase, it may also make sense to create a Family Council as a formal forum for discussion, strategic planning and governance. Some of the benefits of this include:
• An opportunity for all family members to be heard, even if they aren’t actively involved in the business
• Creates a forum for recognising success as well as discussing problems and resolving conflicts
• Has a strategic focus as opposed to day-to-day operational matters
• Can concentrate on governance issues relating to the interface between the business, its owners and the wider family
This ensures that all stakeholders have a voice, and offers the best chance to create unity and consensus. As the family grows (perhaps at the cousin consortium stage), the numbers may mean that different branches should elect representatives to the council. Allowing plenty of time for discussion is undoubtedly the most important factor, so many families opt for a ‘retreat’ style of meeting. Perhaps the most beneficial element of this approach is that it allows the involvement of your family’s generations. Younger members will hear the history, stories, values and vision first hand. In essence you’ll already be nurturing the future leadership talent pool.
Norma Stewart, Partner
For further information contact Norma Stewart
Tel: 01865 723 131