Governance
Family businesses are much more complex entities than their non-family counterparts, because of the central role played by the family and the inherent conflicts that can arise between family and business values.
The family system is emotion-based and inward-looking, and places high value on the long-term care and nurture of family members — all of which contribute to a conservative structure that operates to minimise change. The business system, on the other hand, is based on contractual relationships and is oriented outwards towards meeting performance targets and results.
So what effect does this difference have?
Business systems seek to make the most of change, while family systems seek to minimise it. By establishing a governance structure, the boundary between family and business is clarified; it helps the family develop a cohesive approach to the business, which can combat the tensions that interfere with the effective functioning of the business. This in turn allows the expectations of all stakeholders to be better managed, giving individuals an improved understanding of their roles and responsibilities.
BDO family charters
BDO has done extensive work over the years to help families understand and manage the interaction between these systems. We believe that many problems are inevitable and can therefore be predicted before they occur — meaning that families can prepare practices and procedures to mitigate their risks.
Much of our work to improve governance results in a family charter. This document details the policies and structures that will enable the family to remain together in harmony and the business to operate independently and continue to prosper. It provides clarity both for those involved in the business and family members who are not involved.
The types of issues that charters typically deal with include:
- Vision
- Mission
- Values
- Management philosophy and objectives
- Share ownership
- Family councils
- Family employment
- Family meetings
- Philanthropy
- Communication
- Succession planning.
The process of writing a charter is not a straightforward one. It requires high levels of commitment, a willingness to listen and talk to one another frankly, and a commitment to tackle any 'taboos' directly. Ultimately, the value of working together as a family throughout the process is more valuable than the final document. The process itself will result in significantly increased clarity and discussion within the family group.
