Family governance plays a crucial role in the longevity and success of family businesses. It concerns the organisation and management mechanisms within the entrepreneurial family, and helps to structure the relationships and responsibilities between family members and the business, thereby ensuring stability within the business. Depending on its configuration, each company has specific needs in terms of management and control mechanisms. Clear rules protect the business from power struggles between family members, as well as from possible plundering of the business by non-family members.

The Family

The family is made up of different members, who can be differentiated according to their function and degree of interference in the business:

• family members active in the management of the business;

• family members exercising supervisory functions;

• family members who own the business or hold shares in it;

• the family in the broadest sense, which includes not only the family members involved and active in the business, but also their spouses, potential heirs, the generation that has already retired, step-families, etc.

It is not uncommon for family members to wear two hats, for example, that of owner and manager and/or member of the board of directors.

Family Charter

The family constitution, also known as the family charter, defines the family’s values, mission, priorities and vision, as well as the policies governing relations between family members and the business. It serves as a guide for all important decisions and establishes consensual rules to guide decisions in times of crisis. It should be discussed and revised regularly.

1. Value, mission and vision

The family constitution expresses the family’s fundamental values, mission, and long-term vision. It helps to align the individual objectives of family members with those of the company.

2. Role and Responsibilities

It also sets out the roles, composition, and powers of the company’s governance bodies, including family members/shareholders, directors, and the board of directors.

3. Evolution of the Charter

As a living document, the family constitution must be regularly updated to reflect changes within the family and the business.

Family Institutions

Family institutions are structures put in place to facilitate communication, decision-making, and the management of family relationships, once the company reaches a certain size and complexity. They include :

1. The Family Assembly

The Family Assembly represents the family as a whole. Its composition is listed in the family charter. Depending on the situation and the family tradition, the family meeting may be made up not only of the direct owners of the business, but also of their spouses, their children and their children’s spouses, as well as the generation that has already retired. The Charter must also specify the age at which the owners’ children can be included in the family meeting.

The main role of the Family Meeting is to discuss the Family Charter and the estate strategy, which it adopts and reviews on a regular basis. The Charter defines the decision-making powers of the Family Meeting and the decision-making procedures.

2. The Family Council

The Family Council is made up of members representing different branches of the family. It deals with day-to-day business, makes strategic decisions, and is responsible for preparing and organising the family meeting.

The family charter sets out the exact composition, tasks and decision-making mechanisms of the family council. Ideally, the family council is made up of people directly involved in the business and family members who are active in the business. It is also a good idea to include members of the next generation and, at least for a time and depending on their age, members of the previous generation.

3. Family committees

Specific committees can be set up to deal with particular areas such as education, finance, or the management of family assets.

Communication and Transparency

Effective and transparent communication is essential to maintain trust and cohesion within the family and between the family and the company. A communication policy is therefore put in place to encourage a proper and sincere exchange of information between family members. This includes communicating fundamental choices and important events. The situation of the company and its development must be regularly presented at the family meeting, where decisions are taken on the basis of open discussions and expert advice.

Formal Communication Channels

To be effective, family governance must be based on active and honest communication about important events and changes in the stakeholder groups. In small families, this information can be communicated at family meals. However, when the family is larger, it is crucial to establish communication channels that allow family members to share their ideas, aspirations, and concerns. This can include regular meetings, newsletters, and digital communication platforms.

Formal and informal communication are therefore complementary.

Information Sharing

Family members, particularly those not involved in the business, should be kept informed and up-to-date about the company’s major business achievements, challenges, and strategic directions.

Succession planning

Succession planning is a key element of family governance. It ensures the continuity of the business across generations.

Preparation, training and development

The Family must, first and foremost, establish clear and explicit selection criteria to identify potential successors.

Future leaders need to be prepared and trained for their roles as early as possible. This can include mentoring programmes, specific training, and work experience within the company, as well as the rapid delegation of responsibilities to the next generation so that they can prove their ability to take on a position of responsibility. A contingency plan in the event of the unexpected failure of the head of the business has been drawn up to organise responsibilities and the decision-making process.

Conflict management

Conflicts are inevitable in any family business, but good governance can help to manage them in the long-term, thanks to:

1. Formal conflict resolution mechanisms, such as mediation or arbitration, which should be included in the family constitution and institutions;

2. Conflict prevention mechanisms, including open communication and clear rules, which can help prevent conflicts before they become unmanageable.

Involvement of Family Members

The involvement of family members in the business can vary, but it is important to define clear expectations and criteria for involvement.

1. Policies must be established to govern the employment of family members in the company, including selection criteria, job descriptions, and performance evaluations.

2. The rules regarding the distribution of dividends and other benefits must be clearly defined to avoid misunderstandings and resentment.

3. The strategy should allow each family member to leave the company (exit strategy).

Independence and Autonomy

Family governance must ensure independence and autonomy, which are pillars of the company’s sustainability. This involves a clear separation between operational management and family interests.

To conclude

Family governance is essential for the success and sustainability of family businesses. By establishing clear structures, fostering open communication, and planning for succession, family businesses can navigate the unique challenges they face and ensure their long-term prosperity. Key elements of family governance, such as the family constitution, family institutions, communication, succession planning, conflict management, and the involvement of family members, form a robust framework for managing the complex relationships and dynamics within the business and the family.

The information presented in this article is based on specialized documents and manuals on family business governance.