Cleaning Up the “Family” in the Family Business

15 Sep Cleaning Up the “Family” in the Family Business

While 77% of surveyed family businesses reported that they have conflicts among family members, just 13% of those businesses have a conflict resolution process in place.[1]

No matter how professional the business side of a family business looks, the family side can get messy. Much is unspoken. Family members defer to the patriarch because he started the business and it seems to belong to him. Others find ways to work around the challenges, the way they do in their family relationships, possibly by embarrassing certain family members or ignoring them completely.

Yet at a certain point, it’s important to actually clean up the family side of the business by putting formal governance processes in place. These processes make roles and responsibilities clear and defined. And as the company grows, it’s important to have opportunities to educate the next generation and bring all family members together to support the family’s values.

First Steps Toward Governance

Moving from the unspoken, casual form of family governance to a more formal process is complicated. Family wealth and family businesses are different from individual wealth. With so many stakeholders, the right move isn’t always clear. Taking those first steps toward formal governance is a necessary part of the growth of your family’s business.

As you get started, take the time to learn about these 3 areas:

1. Tasks and representation: Consider the ground rules. Setting up a family assembly or family council to guide the governance of the business is important but also varies from business to business.

• Determine the tasks. Identifying the role and job of the family council will help inform who should be involved in it. If it’s important to educate the family members about the business, for example, you may want to include future owners on the council.
• Identify necessary skills and experience. Some family members may already have experience in governance in some way. It’s a good idea to draw on that experience to benefit the entire family. Think about the family members who could be involved and identify what skills and experiences may be valuable to your family business.
• Define “family.” This word may include only blood members, or it may include spouses. It may include current owners or potential future owners. Consider how broadly you want to define it, as there are reasons to include or exclude. Once you know the tasks and the skills, there may be a reason to include a broader group to achieve proper governance.

2. Decision making: Family governance is a broad term that is interpreted differently in almost every case. What does the family council have the authority to do? What kinds of decisions can they make? It’s important to put the specific decision-making powers into writing to formalize and clarify them. This should include details about the decision-making process, and whether the process will be by consensus or by voting (or a combination).
3. Accountability: In a smaller organization or family system, accountability is informal and unstructured. At some point, however, it becomes important to formalize the system so that people who don’t perform their assigned tasks can be warned and even suspended or dismissed, if necessary. In some cases, accountability is tied to financial incentives or sanctions. However, the key is to ensure that all expectations relating to accountability are transparent, including the ways the family council reports on their contributions.

Good governance is the best way to ensure you have processes in place to address conflicts and relationship challenges within your family business. Even better, it can provide opportunities for family members who are uninterested in ownership or employment opportunities to contribute to the family business.

To learn more about succession planning for your family business, contact us.

[1]     PwC, Family Business Survey 2021.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.