Introduction to Family Governance
Provided by IFC Corporate Governance
The family aspect is what differentiates family companies from their counterparts. As a consequence, the family plays a crucial role in the governance of its business. When the family is still at its initial founder(s) stage, very few family governance issues may be apparent as most decisions are taken by the founder(s) and the family voice is still unified. Overtime, as the family goes through the next stages of its lifecycle, newer generations and more members join the family business. This implies different ideas and opinions on how the business should be run and its strategy set. It becomes mandatory then to establish a clear family governance structure that will bring discipline among family members, prevent potential conflicts, and ensure the continuity of the business. A well functioning family governance structure will mainly aim at:
- Communicating the family values, mission, and long term vision to all family members.
- Keeping family members (especially those who are not involved in the business) informed about major business accomplishments, challenges, and strategic directions.
- Communicating the rules and decisions that might affect family members’ employment, dividends, and other benefits they usually get from the business.
- Establishing formal communication channels that allow family members to share their ideas, aspirations and issues.
- Allowing the family to come together and make any necessary decisions.
Developing such a governance structure will help build trust among family members (especially between those inside and outside of the business), and unify the family thus increasing the viability chances of the business. The major constituents of a family governance structure are:
- A family constitution that clearly states the family vision, mission, values, and policies regulating family members’ relationship with the business.
- Family institutions, which can have different forms and purposes, e.g. family assembly, family council, and other family committees.
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