Global

Details

  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 5/1/2012

Best practices of good governance in family business 

Good Governance
We’ve seen an increased desire for a formalised governance structure when the founder of the family business relinquishes day-to-day control, and the business needs to transition across generations.

When the business has a desire to grow, it’s inevitable that the structure will become more complex, with harder decisions to make, and without clear governance growth objectives, this may not to achievable. Linked to this is the position of non-family executives helping the business remain competitive, bringing about a new dynamic that needs careful management.


Governance best practice is about ensuring that the key decisions you’re making are as good for the business as they are for the family. In order to approach effective family business governance, consider these common best practices of good governance for families in business…


Family

  • Establish dedicated communication channels (for example, family meetings or family councils) to develop and approve key strategic business decisions, determine management and ownership succession objectives, resolve family disputes and decide how to distribute the wealth generated by the business.
  • Appoint an effective advisory board that includes independent non-family members.
  • Establish guidelines and policies to help the family make decisions about their individual and collective futures in the management, leadership and ownership of the family business.
  • Develop a family constitution. While it is no guarantee that it will prevent conflict among family members over the family business, it can provide a mechanism by which conflict can be resolved. It also forces the family to consider important issues about the future of the family business that might otherwise be put aside.

Business

  • Develop clarity of vision that leads to a proper strategic planning process.
  • Understand and manage your business risks.
  • Look for the “bad news”, ensuring that problems and irregularities are not overlooked or ignored.
  • Monitor and evaluate business performance, highlighting key trends and issues.
  • Establish important business fundamentals that build value and drive growth in your business.
  • Create an effective assurance framework, embracing management controls and internal and external audits.

Ownership

  • Establish ownership criteria for family members.
  • Develop a shareholders’ agreement that supports the overall management and ownership succession objectives (e.g. keeping it in the family).
  • Consider the benefits of family trusts to help safeguard family equity and maximise tax savings.
  • Ensure that the owners’ will is in sync with the succession plan.
  • Complete an estate plan.
  • Start early so that you are well positioned to realise the full value of your hard work.

Planning for the future of the family business

Governance is about having agreed upon family and business ‘values’ – what the family stands for, and how it wishes to behave under public scrutiny. It’s astounding how many families don’t have these, or if they do, how many don’t share them broadly enough. Any business today should have clear values in place.


Without a ‘vision’ for the business, the governance structure is hard to put in place – there needs to be a clear strategy for there to be solid governance. Many families have a family constitution in place which will survive through the generations to minimise conflict.


Communication is paramount, both within the family and between the family and the business. Without family meetings and/or councils, the less involved members of the family will feel excluded and conflict will be more likely.


Families may want to think about working with non-executive directors or consultants to help with a governance structure and to act as a trusted advisor.


Most importantly, this all needs to be in place early on, so that all eventualities are planned for!


Keeping It in the Family: Governance for Family Business (PDF 0.7 MB)

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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