• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 4/11/2012

Family Business vs. Corporate governance – meeting in the middle 

Corporate Governance
Many people (and many family businesses even) are under the impression that governance in family business is a contradiction in terms. Establishing corporate governance structures in a family-run business would be like having the health department inspect your mother’s kitchen – a ridiculous notion – that is until you realise that there are too many cooks in the kitchen and no-one can make a clear decision on what they’re supposed to be cooking…a recipe for disaster.

Family businesses are key players in the global economy, but are often underestimated. People forget that some of the largest organisations in the world started out as family businesses – Wal-Mart, Toyota, Ford, Samsung, and many more. And all of them at one stage or another realised that in order to continue to grow, some structures, processes, and policies would have to be put in place.

The way to better family business performance

If the family members in the business constitute ‘the why’ – providing for the family, leaving a legacy, etc. – then governance is embodied as ‘the way’. It’s the framework that regulates how decisions are made, who is accountable to whom, who is responsible for what, and ultimately, how the business will be managed.

If we look at why a family business needs governance processes, the reasons are many:

  • As the business grows, ownership and management responsibilities will inevitably pass from one generation (the founder) to the next, and conflict may result if there’s no policy to dictate a succession plan.
  • Governance is important in managing the growth of the business – defining the company’s structure, people’s roles and responsibilities, and the chain of command.
  • In every family, tension and disagreements are bound to crop up, but a governance framework can help to keep the peace.
  • As the business grows, non-family employees will grow too, and there needs to be a system in place to manage performance evaluations, rewards, and promotion. Transparency and fairness are critical tools in preventing conflict.

At the end of the day, corporate governance can only benefit a family business in the long-term – helping to improve business performance by meeting strategic objectives, and satisfying the expectations of all family members as well as non-family employees.

The biggest challenge for family businesses is accepting that ‘the way we’ve always done things’ has to change in order for the company to grow and maintain the competitive edge.

Meeting in the middle

Putting governance structures in place won’t happen overnight. It starts with establishing a family council to formalise communication, giving everyone in the family the chance to voice their opinions on business decisions, succession planning, strategic objectives, and the future of the company.

The next step would be to consider bringing on a board of directors or advisers, drawing on outside expertise (non-family members) to provide unique insight and advice. With a board in place, family members could begin to establish policies to guide strategic business decisions regarding management, leadership, operations, and ownership.

The key to implementing a good governance framework is to start early – whether the business is first or third generation – in order to ensure that your family and their future are provided for.

As Bill Ford, Ford Motor Co. Executive Chairman (and great-grandson of the Henry Ford) said in 2002, “I feel like I’m a caretaker of our culture and our legacy. I’m working for my children and grandchildren, and I feel I’m working for our employees’ children and grandchildren as well.”

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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