News - Good family governance key to survival for family-owned businesses

Good family governance key to survival for family-owned businesses

Published on: Aug 21, 2019

Developing a robust Family Charter will allow family businesses to better align short-term challenges with long-term objectives

A recent survey by Deloitte found that, of the 791 family business executives surveyed across 58 countries, just over 50% believe that they are prepared and fit for the future when it comes to strategy, ownership and governance. Less than half (41%) are as confident when it comes to succession.

The key problem many family-owned businesses face is aligning the long-term goals, keeping the business in the family and preserving (and growing) capital, with the short-term challenges of overcoming disruption, digitisation, globalisation. This comes despite the fact that family businesses are traditionally very long-term orientated, as they have an eye on the future and family leaders often share values, culture and vision.

Yet according to the survey, businesses still lack clarity on succession, ownership, governance and strategy. This means that their long-term goals can too easily be undermined by short-term disruptions and events, for instance the internal shock of the passing on of the founder. Furthermore, unstructured internal dynamics can hamper the company’s efforts to deal with technological disruption or globalisation. Younger family members’ efforts to digitise, for instance, could be stymied by the older, more traditional members of the family resulting in a business that is less efficient and less competitive.

Without a robust Family Charter, even smaller disruptions can have outsized effects on business performance. A Family Charter (also known as a Family Constitution) is a means by which members/individuals within the family business can avoid conflict by agreeing to a predetermined set of rules and guidelines. By providing a mechanism for solving disputes and facilitating decision-making, it creates a sense of cohesion which leads to growth and business success, allowing the family business to evolve and adapt to changing circumstances.

A Family Charter will outline the wishes of the Founder / Patriarch and set clear rules and guidelines surrounding decision-making, ensuring the process is made more efficient and empowering other family members. If needed, it will establish the structure of a family council – a vehicle through which family decision making authority, including operational rules, will be vested – it will create procedures for family members to raise issues or make complaints, develop noncompliance-procedures and consequences among other rules.

Ultimately, the Family Charter should be tailor-made to reflect a family’s particular circumstances, have the support of all family members and find a suitable balance between the interests of the family and the business it owns.

To find out more about how Family Charters and governance can help you and your business, contact Alpadis Group here