What is Family Business Governance? and how do you get started?

Summary

In this video, Russ Haworth, a specialist family business advisor, introduces the concept of family business governance and its role in addressing challenges within family-run businesses. He explains various governance tools such as Shareholders Agreements, family charters, and family councils, which help create structure, consistency, and clear guidelines for future generations. Russ emphasizes that family governance isn't one-size-fits-all and encourages families to tailor their approach based on specific needs. He also invites viewers to reach out for personalized advice on implementing family governance effectively.

Takeaways

• 😀 Family business governance is often viewed as the solution to many challenges families face in business together.
• 😀 A shareholders agreement is an example of governance within the ownership system of a family business, helping to manage relationships between owners.
• 😀 Family governance aims to create structure, consistency, and guidelines for family members involved in the business.
• 😀 A family charter or constitution outlines key aspects like the purpose of the business, who can own shares, and who can work in the business.
• 😀 Family governance includes moral, but not legally binding, agreements that help guide family members in their roles within the business.
• 😀 A family council provides a forum for family members to discuss the business without interfering with daily operations, helping to communicate their views to the board.
• 😀 There is no 'one size fits all' approach to family business governance, as each family has unique needs and dynamics.
• 😀 As family businesses grow, the need for clear communication across family systems increases, making governance frameworks even more important.
• 😀 It’s crucial to start by understanding what you aim to achieve with family governance before implementing any solutions.
• 😀 Instead of using generic templates for family charters or governance, the process of creating these documents should be tailored to your family's unique goals and values.

Q & A

What is family business governance?

Family business governance refers to creating structures and frameworks that help manage the relationship between family members in a business. It aims to bring clarity, consistency, and alignment to ensure smooth operation and decision-making.

What is the purpose of a shareholders' agreement in family business governance?

A shareholders' agreement governs the relationship between the owners of the business, outlining the rules and guidelines on ownership, decision-making, and responsibilities. It helps prevent conflicts and ensures clarity in the ownership structure.

How does family governance create consistency in a business?

Family governance helps create consistency by establishing clear rules, values, and a framework that guides decision-making. This ensures that all family members understand their roles, responsibilities, and expectations in relation to the business.

What is a family charter or family constitution?

A family charter or family constitution is a document that outlines the family’s values, vision, and the purpose of the family business. It also includes guidelines on issues like ownership, who can work in the business, and the family’s long-term goals. While it is not legally binding, it is morally binding for the family.

Why is a family charter not legally binding but morally binding?

A family charter is not legally binding because it is not a formal contract enforced by law. However, it is morally binding because the family agrees to adhere to the guidelines and values outlined in it, creating a sense of responsibility and mutual commitment.

What is a family council, and how does it function?

A family council is a meeting or forum where family members—whether owners or non-owners—can discuss their perspectives and goals for the business. It provides a platform for the family to express views on the business without interfering with day-to-day operations, ensuring better communication with the management team.

What are the key benefits of introducing family governance into a business?

The key benefits of family governance include clearer communication, better decision-making, alignment of values, and the prevention of conflicts. As the business grows, governance helps maintain consistency and ensures that family members are on the same page regarding the business’s future.

Is there a one-size-fits-all solution for family governance?

No, there is no one-size-fits-all solution for family governance. Every family business is unique, and governance frameworks should be tailored to the specific needs, challenges, and goals of the family and the business.

Why should families avoid using off-the-shelf templates for a family charter?

Off-the-shelf templates may not address the unique needs and challenges of your family business. The process of creating a family charter should be customized to reflect the family’s values, goals, and specific circumstances. Developing your own charter ensures it is meaningful and effective.

How can a family business advisor help with implementing family governance?

A family business advisor can help guide the process of implementing family governance by understanding the family's goals, helping them decide the best structure, and facilitating the creation of tools like family charters or councils. Advisors can provide expert advice tailored to the family's needs and support the family throughout the governance process.