Navigating family governance: Building strong foundations for your family business and its future

Family businesses can be challenging at the best of times but with thoughtful planning, you can secure the long-term success of both family and business

Governance is a word often associated with the corporate world. Images of people sitting around a large table discussing the issues of the day and making plans for the future may come to mind, but governance is just as important in family businesses as in downtown high rises.

But what is family governance? Breaking it all down, governance is about the “how” and “who” of arriving at decisions. For many family businesses, the decision-making system is informal and mirrors that of the family – relying on parents’ choices for the rest of the family and the business’s future. Building a strong foundation for your business will look different in every industry, but when the time comes to think about passing the keys over to the next generation, solid governance is vital.

In business-owning families, choices made have an impact on the entire family’s economic and social situation. The stakes are much higher than in non-business-owning families and as such, the importance of establishing a solid governance structure cannot be underestimated.

The makings of a governance plan

Whether you already have a reliable and effective structure in place or not, it’s never to late to assess how your family business is making decisions.

Here are a few key things to consider when looking at decision-making in your family business governance system:

• Approach and philosophy – Having an understanding as a family unit, and ideally some form of consensus, when it comes to decision-making can save a lot of time and hurt down the road. Every decision, from big to small, will be tested against the family’s foundational values, so having a system in place to help make those calls ahead of time will prevent confusion and disagreement.
• Guidelines for interpersonal interactions – Something as simple as establishing honesty as a guiding principle in decision-making conversations – both honesty in business and in emotions – can help the process go a lot smoother. Expressing expectations openly and being clear about what each person wants or needs is another way to keep lines of communication open. How your family works together in times of stress and success is a big determinant of how your business moves forward into the future.
• Decision-making processes – Whether it’s routine or a one-off crisis, there should be a set way your family approaches decision-making together. Categorizing decisions based on impact, both in the short- and long-term, can help determine the best process and ensure everyone understands the situation and consequences.
• Who, what, and how – Take the time to assess who is consulted on decisions, who has final input, and who gets communication about the decisions after they’ve been made. What steps will the family go through to come to a final outcome – every family member might not have final say but if it will impact them, consultation might be important. How will this decision impact the family and business long-term? Taking a look at all of these aspects in one fell swoop gives everyone the chance to understand the choice and approach, ask questions, and make informed decisions.

While these considerations just touch the surface of governance planning, and every family will have a different approach to the process, when it comes to succession, there is no wrong place to start.

Open communication and goal planning must be a team sport in order to yield successful results.

In a transition period

If you and your family have made the decision to transition the ownership, and/or leadership, of your business to the next generation, a firm governance structure will be your best friend.

It may seem like a decision for you, or the current owners, to make alone but really, doing so in a silo will stifle collaboration and can lead to resentment.

Setting up thoughtful processes can be as simple as starting to have regular family meetings to discuss the future of the business and each family member’s role in that future.

This will promote strong family relationships and can help solidify family stability and the long-term stability and success of the business when done effectively. Having a professional facilitator meet individually and confidentially with each family member, and then work with the family to establish agendas and facilitate the meetings, will get the process off to a strong start, and ensure that things stay on topic and are productive.

The value of family meetings cannot be overstated and have been shown to form one of the top three correlating factors in family business success. Once implemented, these meetings can take on their own momentum, although this often relies on one or two key family members becoming champions of the process.

Benefits can include:

• Building a stronger family,
• Building a stronger business,
• Planning for the future ownership of the business,
• Planning for future family participation in the business,
• Helping children manage inherited wealth through education,
• Considering the succession process,
• Preserving family values, traditions, and history,
• Professionalising the business, and
• Recognizing and resolving conflict.

By starting with regular family meetings there is a logical progression towards formalisation both in the processes set up and in the structures created.

Your family will control the pace of your governance structure’s development and though it will take time and effort to achieve, the results are worth it.

Through MNP’s Family Office service, you don’t have to go through this process alone. MNP Family Office was designed with family business in mind and helps businesses of all sizes and structures ensure their future is secure and goals are met.

Contact us

To learn more about how to get help planning for your family businesses future, contact Lynne Fisher, National Team Leader, SMART Services, at [email protected] and listen to Lynne further discuss family succession planning on a recent episode of the Bennet Jones podcast series Beyond Succession with Leah Tolton.