What is Family Governance?
Family governance is actually a process, platform or structure to educate, mentor and facilitate communication between family members of a business family and also provides a forum for constructive discussions, problem solving and decisions about how the family members interact with each other and the family business.
The birth of a formal family governance dialogue can be attributed to the Three-Circle Model of the Family Business System that was developed by Renato Tagiuri and John Davis at Harvard Business School (HBS) in 1982. The model represents three interdependent and overlapping systems in a family enterprise: Family, Ownership and Business.
For a family business to function effectively over time, each system must understand how to interact with and support the other systems. In addition, people within each system should appreciate which decisions are theirs to make. This interaction, support and decision making is also called as Governance.
The Role of Family Governance
Some key discussions while creating a governance platform:-
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- Define vision for the family and define its philosophy towards the family’s relationship with the business and how the businesses’ engage with the family
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- Identify and decide on the values by which the family and the family business will operate on
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- Propagate the family history and set of core values
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- Help the family in understanding the rights and responsibilities of business ownership
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- Establish and maintain an effective plan for business ownership
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- Define key family leadership roles
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- Create a robust succession plan for the business and build expectations from the family members involved in the business
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- Increase intra-family communication and celebrate key wins, events, milestone so as to maintain family affinity
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- Create a relevant conflict management process so as to avoid family friction before it damages the family dynamics
How do you structure a Governance platform?
Some key discussions while creating a governance platform:-
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- How many family business owners are there?
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- How many family members are involved in the business and how many are serving in management functions?
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- How many generations are in the family and how many of them are serving in management roles?
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- Are there non-family executives which also have ownership rights?
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- What is the current relationship among the family members? Do they get along, have conflicts or have very less interaction?
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- Who will be involved in the family business decision making and who will lead the decisions relating to family members and family interactions?
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- What will be the process of decision-making?
What is a Family Constitution?
Some key areas covered while structuring a Family Constitution:-
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- The document creates a ‘way of life’ set of rules which the family members need to absorb so as to promote the value-set of the family
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- The document will also define a structure for planning for the future and how the family will prepare and adapt to any foreseeable changes
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- The constitution will lay down a decision making and conflict management process
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- It also includes focusing on how family wealth will be managed and distributed among members
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- The documents will also prescribe the formal process of succession for the nextgen and also layout policies regarding mentoring, education, etc.
