Twenty-five years ago, as a junior manager in a multinational business a mentor gave me the following advice on governance, engagement and profitability;
“manage this business like it was a family business”, “treat your staff like family, make your decisions and spend the company’s money like it was yours”.
Over the last ten years the narrative and the rhetoric has changed but large companies are still trying to emulate family businesses. They do this because their staff are more engaged and their profits are greater. There has been plenty of rhetoric around putting business purpose before profit and how businesses that do outperform those that don’t. Well, this is the very heart of family business.
So how do they do it? Well they all don’t. Only the ones with sound family governance realise their potential. It is the enabler to engagement, the holy grail to harmony, continuity and profitable performance in a family business. It provides the framework to extract the performance advantage that non-family businesses cannot derive and only hope to mimic. The power of the “engaged collective”.
Family governance relies on a number of core pillars;
Lack of appropriate communication processes are the primary cause of loss of engagement and transparency within family businesses. Non family business communication processes are inadequate, often leaving an engagement chasm between family members and in the family business dynamic.
If your family business operates on hierarchical basis of a few people know “A LOT” about what’s going on, while most know “LITTLE” then there is something you need to know. The “I know very little” will become uncomfortable and perhaps even suspicious of those in the “I know a lot” group.
With family members it is always better to “overshare” to the point where they feel like you are bombarding them with detail, than to “undershare” and have them think you are hiding anything.
All family businesses no matter how small will experience tensions from conflicting views or issues. This is inevitable, what is critical is that you have a framework to resolve these differences. A due and fair process of conflict resolution bringing an end to the conflict allowing everyone to move on with residual tension.
Family governance follows the ethos of “by the family for the family”. It is all about how things are taken care of for the larger family group. Typically this involves smaller groups of people doing much of the work and making many of the day-to-day decisions on their behalf. Naturally to do this equitably requires a transparent or open framework and agreed rules.
Being accountable to the group is the next key principle that follows on perfectly to transparency. Not only do those who are taking care of things need to be upfront and above board with the things that they are doing on behalf of the other family members, they actually need to be held to account for the results.
If certain people are being trusted by others to represent them, there needs to be an occasional “accounting” of their performance. If results are sub-optimal, explanations are warranted, and continued underperformance should naturally raise possible questions of fitness for the task. As long as group members can see what those at the helm are doing, and that there are opportunities to discuss results, things typically run smoothly.
Participation flows from transparency. Imagine a scenario where performance is not up to expectations. Other family members might rightly want to be able to be involved at a deeper level, if they feel that they have a contribution to make. Of course, this principle involves more than simply having a line form to take the place of those at the helm. Simply being invited to take part in any discussions around transparency and accountability also count towards participation.
Family governance does not have to be complex. It could start as simply as a few dot points on a charter and initiating structured family meetings. It depends on the family and the business. But do not be mistaken, it is critical to the successful continuity and performance of the business.
If you’re unsure about how your business and family can deliver this advantage, seek the assistance of an independent family specialist like Woodhouse , then do it.
You can also check out our video on family businesses.