Global

Details

  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 12/26/2013

Family Governance 

Family governance
Successful governance of the family business, the family office or family wealth in general can be immensely powerful as a platform in maintaining the aspirations of the family, managing its wealth and in ensuring a commitment to high standards which satisfy the expectations of family members.

Unfortunately, this is an area which many families are reluctant to address as there are often conflicting dynamics which are at odds with the characteristics and desires of individual family members.


The implementation of a Family Constitution should be approached sensitively and strategically, resulting in a comprehensive mission statement on the framework by which the family’s affairs will be governed. It should succinctly reflect the wishes of key senior family members and be updated and reviewed periodically to ensure that it remains effective – this is especially important in today’s society where we see so many multi-jurisdictional and diverse family groups.


The Family Constitution would set out the key practices which family members are expected to adhere to. Whilst this concept may appear restrictive, a well implemented constitution should help to avoid conflict, set boundaries as to what should be observed and clearly express the expectations of individuals’ roles, whilst also providing certainty as to what resources and support is available to family members.


The structuring of the Family Constitution should retain flexibility to enable the family members to fulfil their aspirations without interference, whilst conveying the acceptable parameters of the family’s values, their family legacy and often their wider contributions to society.


Clarity on leadership alongside respect and recognition of individual contributions to the success and existence of the family business (whether the individuals are involved or not) is immensely important. Often, these conversations come too late, e.g. following death of a patriarch, leaving uncertainty and discord – yet, proactively addressing these conversations openly and collaboratively can lead to a smooth and often swifter transition.


A robust family governance structure should include clear communication channels and an understanding of individual roles and a balance must be drawn between family values and commercial needs. A successful structure may include some or all of the following:


  • A Family Assembly to provide a forum for clear communication between family members and this is particularly beneficial with disparate family groups who may or may not be involved in the business. An effective Family Assembly will provide an opportunity for family members to interact, socialise, share ideas and contribute to the structuring of the governing policies.
  • Large families may benefit from a more formal Family Council, acting as an intermediary between different family lines to represent their interests and communicate with the Family Assembly.
  • Where a corporate entity remains, an Owners’ Assembly should be considered as this provides a forum for communication to the wider family and shareholders on key business matters.
  • As with all businesses, a Board of Directors facilitating the planning and implementation of the strategic objectives should be established, ensuring that pertinent decisions are made in a timely and effective manner.
  • A robust structure should also include a Supervisory Board to act as counsel and to oversee the Board of Directors. The Supervisory Board should be independent and reflect expertise in key areas relevant to the family and business, drawing on the professional skills of family and nonfamily members.

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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