At the mention of the term “family governance,” what comes to mind? How does it work and how can it benefit you and the members of your family? Family governance, in a nutshell, involves the financial processes and structures that families put into place. These processes will go a long way in organizing relationships in family enterprises.
All governance consists of a core set of elements. Firstly, there is a group to govern. Then, there is decision-making that needs to be made by or for the group in question. Well-executed family governance assists with putting boundaries in place, as well as being an excellent source of role clarity.
Family governance ideally results in creating harmony amongst your family members, all while allowing your family business to flourish.
Give Your Business More Focus
Family governance will allow you to form a more focused take on your business. It will also make life a lot easier when dealing with more than one generation in a family unit. Having set rules and guidelines in place to navigate overlapping familial and professional roles will give you the time and space to focus on your business goals. You won’t have to constantly manage your interpersonal relationships because everyone will already have guidelines for where they fit into that system.
Family governance needs to reflect the culture, dynamics, financial planning, and objectives of your family business. This is specific to your family unit whether involved in a family business or not. Knowing how your specific family operates is important when coming up with an effective strategy.
The 3 Basic Pillars of Family Governance
It is important to be aware of potential family governance challenges that could arise if a strategy isn’t fully put into place. In order to set yourself up for the best chance at success, here are some factors to keep in mind.
Family Governance Meetings
Families benefit from meeting up regularly, so make sure to prioritize getting everyone together. Although this is usually an annual event, this could also take place quarterly or every six months.
Family Council Meetings
Family council meetings are beneficial. During these council meetings, the members will put together strategies and take time to make specific plans for their business. These include the creation of policies and the strengthening of communication. This is to touch base within the business and to increase the bond amongst the members.
A family constitution unpacks the policies, values, and vision of the family business. It also regulates the relationships of all the members. A written document is useful in listing the long- and short-term mission statement.
These three simple components are usually everything a family business requires. There are, however, many instances where family businesses use a more involved family governance structure. A more involved family governance structure could involve separate council meetings for shareholders. They also include board meetings, management meetings, and more.
The Basic Structure of a Family Governance Strategy
Family assembly meetings usually include all topics about the business. Presentations by family managers and non-family managers are the norm. Discussions about where the company is heading will be covered, although decisions are usually not made at this point. Other meeting agenda points could include important skills such as educating family members about the company’s activities and financial statements.
Family assembly meetings present the perfect opportunity to discuss updates and changes within the business. This is a great opportunity to get updated on all the changes, accomplishments, ownership, potential legislation to be aware of going forward, and more.
Family Assembly vs Family Council
Any family assembly that accomplishes certain tasks will strengthen the business relationship within the family. The right mix of discipline and values combined with strong management skills will bear fruit. As your business grows, you might find that it needs a little more than assembly meetings. This is where a family council will come in handy.
Moving forward, the council will plan all assembly meetings. All current business, ownership, and family issues will also be discussed. The family will be kept in the loop regarding these and other issues.
The family council will assist with the family making decisions in a unified voice regarding all future goals. It will also inform the board regarding the views of the family (which often mirrors the views and values of the company). The council also includes maintaining a dialogue with the board regarding any plans or key policies.
It is the duty of the family council to develop all plans and policies with the board. These are to regulate any family activities within the realms of the business. Council will also scout for new talent within the business and create any educational events.
The family council will ensure there is no family interference with the business, all while continually satisfying the company’s main goals. Council will ensure that contributing family shareholders are kept up to speed. The general idea is for the council to create a healthy, harmonious relationship within the family.
The Advantages of a Family Council
A family council, when well-executed, will assist with the clarification of roles. It will also outline the rights and responsibilities of individual family members. The idea behind a family council is for all members concerned to act in a responsible manner towards the business and towards the family as a unit. Appropriate regulations and owner inclusion of members within the business are unpacked.
Phasing in Younger Family Members
Some families believe that young children are never too young to learn. Bringing these new members into the family business can be beneficial for everyone, and allow the newcomers a smooth transition in. They could get involved by learning about investment strategies, credit cards, financial planning, and more. All adult family members are usually involved in family governance meetings, and it could be a group decision on when to bring in youth members.
Family assembly meetings normally take place once a year. The meeting could last a day or two, and cover all adults concerned. Some families include children from a very young age. Others start including younger family members from the age of 16. It all depends on what the family decides.
Encouraging Feelings of Pride and Trust
Families in business need to work as a team and build relationships. Family council and a family assembly play an important role in creating a sense of teamwork to keep all family members committed and disciplined within the business.
The family council or assembly needs to emphasize the importance of goals and policies, openness to the viewpoint of all concerned, and most importantly, transparency. A member’s reluctance to engage in discussions needs to be addressed in family meetings to avoid any conflicts. A smart move might be hiring a mediator to attend family meetings. Good structure and discussing the right topics are important.
The general idea behind a family council or family assembly is to add value to the board of directors. It is by no means there to replace the board. The idea is to coordinate each other’s domains to simplify the process without stepping on anyone’s toes.
The least complicated solution is to achieve sufficient communication between the two.
Is Family Governance Easier than Governing a Country?
Families, at best, are often complicated. One would believe that with love and care for each other the task is an easy one. Combine family members, varying personalities, and ideas together with a business, and it becomes a lot messier and complicated. Families need to face short-term crises based on strong values and powerful governance structures.
Some believe that governing a country is easier than governing a family! With a properly executed plan in place, family governance should be a lot easier than governing an entire kingdom.
Running a business with the people who are closest to you should make your life better, and having a family business governance strategy in place can get you there.
Saddock Is Here To Help
Your family governance could benefit from the services of wealth management advisers to assist. They will discuss all financial issues within the family business. A new set of eyes could cast an entirely fresh point of view and add great value to any family business.
At Saddock Wealth, we bring years of wealth management experience to the table and can help guide you and your family toward financial prosperity.
Schedule a meeting here, and we’ll discuss your best options.