Governance – the glue that binds family and business

Personal feelings can influence business decisions; tensions can form, and then there’s the (awkward) family gathering. It can be extremely difficult and somewhat impossible to keep business separate from personal, because, well, sometimes the business is actually at home.

The added difficulty lies in maintaining a generative family business – one which has succeeded beyond the third generation as a family business. In fact, according to the 2021 Family Business Survey, 1 in 3 businesses have not considered leadership succession/transition, while 56% do have plans to transition leadership, but only 65% of those with succession plans will transition the business to a family member.

Branches growing in different directions

If we think of families like branches on a tree with each generation growing in different directions, it’s understandable why so many family businesses struggle to make it past the second generation.

So how do you remind the next generation that your origins remain the same; the family business is embedded within the roots of the tree providing the branches with the nutrients it requires to thrive and flourish? How do we promote and convey the value of the roots in order to safeguard its transition and succession?

Governance, Governance, Governance

In the wise words of Benjamin Franklin “If you fail to plan, you are planning to fail”. Family businesses need to understand potential sources of conflict and plan accordingly.

Yet the Family Business Survey 2021 shows:

• only 15% of Australian family businesses have a formal mechanism in place to handle family conflict;
• 28% have a family constitution with charter and rules;
• 28% have a family council; and
• 39% have a formal process for incorporating the values, visions and objectives of the family in the business’ planning processes.

This means that well over half of all Australian family businesses do not have processes in place to deal with conflict, to clearly express the aim and goal of the business and to allow for transition and succession. The roots of these family businesses risk being broken.

A strong governance system provides a family business with guidelines on how to make decisions to manage the relationships between family members and other stakeholders, and is essential for family businesses trying to expand beyond the capabilities of the owners. Its goal is to cultivate family harmony and business continuity.

A governance structure can include the creation of a family charter or constitution, councils and forums, and the implementation of processes and tools to facilitate improved communication, collaboration and decision-making. It is bespoke to each family business and should exemplify and reflect your unique family values.

A strong governance system can help a family business identify and effectively communicate their purpose, and provide them with the clarity, discipline and consistency required to ensure it’s adopted as part of the businesses culture.

Philip Hammon, Director of Hammons Holdings, a mutigenerational family business, tells Family Business Australia:

“Creating our Family Constitution allowed the family to agree on policies relating to the business. We could also decide on how our family values should be reflected in our operations, so if business conditions changed we knew we could stay strong together”

How can we help?

Consulting a third party facilitator can assist with the formation of a governance structure, which should be a thorough and collective process. They can ensure that the document is appropriate for your business, identify where the document may be required to be updated, as it should evolve with the business.

A facilitator can also provide a layer of independence as they are not emotionally involved, and serve in holding the family accountable, which significantly aids in dealing with more sensitive matters. This in turn, ensures an equitable and sustainable solution for the business.

Lastly, education is important. It is incumbent on the current generation to involve the future generations in all aspects of the family business, as each generation will reap what the former has sown, and it starts with governance. 

“It’s a multigenerational affair – our five third-generation adult children are on the Council, and the fourth generation are also becoming more involved – it’s about creating a learning pathway about the business and its origins. We’d like to think that our children’s children will have the same opportunities we’ve had”. – Philip Hammon