DIY Governance Can be a Disaster (Part 2)
A fundamental aim of family governance is to mitigate conflict and harmonize interests to ensure business sustainability. Successful family businesses in the region often establish a governance model and do the following:
- Establish and formalize family rules and policies through a family constitution
- Have a clear succession plan in terms of family ownership and leadership
- Establish the right structures and bodies to enable proper family governance e.g. family assemblies, councils, etc.
Professionalization of the Firm
- Corporate Governance: Having an effective Board of Directors with the right structure, composition, roles, decision making rights, etc.
- Planning and Performance: Having a planning function for both holding and subsidiary levels supported by a performance management system
- Controls: Effective management controls are in place to ensure proper functioning of business processes
- Processes, Policies, and Procedures: Effective processes and policies for core business functions, job descriptions, authority matrices, etc.
- Technology: Implementing technological systems which increase efficiencies in processes and promote more effective decision making
Portfolio Direction and Management
- Core competencies of the group need to be clearly defined and an investment strategy outlined to match those competencies and opportunities in the market.
—- Continue with Prof Soriano’s Article —-
Governance is all about communicating and winning the trust of family members/branches as well as instilling the overarching message that institutionalizing rules and setting a realistic code of conduct for the “greater good” can effectively mitigate conflict and raise the bar of productivity.
For some that have sought my help, they have admitted that in the past, the next available “resource” and natural “go to counselor” were their favorite spiritual advisers. These can be the community parish priest, a pastor and to some extent seeking out guidance and wisdom from the most senior and influential member of the business community.
Sadly, for those who are already on the edge and showing clear signs of desperation, they have resorted to calling out as many saints including their deceased founders and influential family members imploring their divine intervention so they can finally put an end to the “curse” we generally refer to as family conflict.
DIY Governance Can Be Extremely Frustrating
The downside in any DIY initiative is it can be physically draining for the family member proponent. Governance is not just about articulating the list of benefits or asserting the importance of legacy creation or getting everyone to comply based on the rules and policies set.
The key is communicating the urgency and significance of going through this all-important event!
It is a Once in a Lifetime Event
Now that I have emphasized the enormity of work and the likely disastrous consequence of initiating a Governance DIY approach, I am sharing a timely PWC research related to the importance of initiating Governance in family owned businesses:
a. Safety in structure. Many family businesses have learned that a little structure can be extremely helpful when the time comes to discuss sensitive issues, such as:
- Ownership shares
- Rights and responsibilities
- The competence of family-member managers, and
- Agreeing on a strategy that is best for both the business and the family
b. It starts with a clear vision—and clear lines of communication
- Like any business, a family enterprise must be built on a foundation of mutual agreement on certain fundamental questions:
- What is our vision—and our mission—for this business?
- What strategy should we follow to reach our goals?
- What structures and people do we need to succeed?
- How do we handle shares, inheritance, in-laws?
The Importance of Education and Shared Values
When next generation members fully understand and embrace their roles as stewards rather than owners, the entitlement mindset is tempered. And having a non-family member as advisor to provide oversight can significantly improve and restrain aberrant behavior.
Clearly, when the process of governance becomes unbiased, consistently applied to all, and initiated without fear or favor and with the guidance and facilitation of an experience family advisor, the family can expect better communication within its members plus the added benefit of a scientific and stable approach to the natural overlapping interests of the family, business and the ownership ecosystem.
In closing, Governance is a sensitive and serious matter and is simply too important to be left in the care of a family member unfamiliar and ill equipped to manage emotions and personal interests of different family members.
Harmonizing relationships and institutionalizing control across generations under an environment of shared vision can tremendously accelerate the growth curve of the enterprise.
If done correctly from the onset, governance can become the source of more strength and longevity for the family.