Why You Need Family Governance

Family governance is a topic that people tend to shy away from, yet it is critical to address when it comes to the long-term success of family enterprise.

Family governance refers to the set of structures, processes, and policies that are put in place to guide decision making and preserve the unity and continuity of a family enterprise or wealth across generations. It serves as a system to manage the complexities and challenges that can arise when family dynamics intersect with enterprise or wealth management.

Harvard Business Review published a compelling article on this very topic entitled, When You’ve Made Enough Money to Cause Family Tension written by Josh Baron, Rob Lachenauer, and Diane Coutu. The article paints a picture of the successful business founder and the dynamic shift that occurs when that business gives way to the “second act”. Although the article was published seven years ago, the premise still rings true today.

A solid family governance structure is essential to ensuring the “second act” is set up for success and is equipped to carry on the legacy you’ve worked so hard to build. Here are a few reasons why you need to establish family governance early.

Preserving Family Unity
Establishing clear rules, roles, and processes creates an environment for shared values, common goals, and a sense of belonging. It provides a structured platform for families to openly discuss important matters, resolve conflicts, and make informed decisions. By enhancing transparency and reducing misunderstandings, the bond between family members is supported, reinforcing unity and cohesion.

Facilitating Conflict Resolution
When it comes to managing wealth and enterprises, conflicts are inevitable. A solid family governance strategy establishes processes for effective conflict resolution such as family councils, and arbitration methods. By providing a neutral and fair approach to resolving conflicts, you will experience family harmony and minimize the negative impact on relationships and business operations.

Ensuring Enterprise Continuity
Family governance ensures the continuity of the family enterprise over generations. It establishes a method for succession planning, leadership transitions, and preparing the next generation for their roles and responsibilities. With a clear roadmap in place, you are equipped and empowered to ensure the sustained growth of the enterprise and continued strength of the family legacy.

Enhancing Accountability
Family governance strategies encourage a higher level of accountability and professionalism within a family enterprise. As highlighted in the above mentioned article, without family governance in place, you may “miss a great opportunity to challenge and mentor your children and to help develop them to their full potential.” By establishing transparent processes and standards for performance evaluation, compensation, and governance, you prevent nepotism or perceptions of unfairness. This enables objective decision-making, motivating family members to contribute their unique skills and expertise to the advancement of the business.

Managing Wealth
Safeguarding your family’s assets is vital to ensuring a legacy for generations to come. The implementation of policies and procedures ensures meticulous management and protection of your assets. From well-defined investment strategies to strong risk management practices, this framework mitigates the risk of mismanagement of funds or financial instability, providing you with peace of mind for financial prosperity.

A comprehensive family governance plan serves as a catalyst for sustained financial prosperity for future generations. It paves the way for a successful “second act” and beyond that consists of effective communication and unity, a solid decision-making structure to safeguard family assets with a clear vision and strong conflict resolution mechanisms. This upfront planning will help ensure you are equipped to navigate the future with confidence knowing that your family’s legacy is protected, and your wealth will flourish across generations.