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 values and business values.

The family system is emotion-based, inward-looking and places high value on the long-term care and nurturing of family members leading to a conservative structure operating to minimise change. On the other hand, the business system is based on contractual relationships, oriented outwards towards meeting performance targets and results. The major difference?
Business systems seek to make the most of change; family systems seek to minimise it.

By establishing a governance structure, the boundary between family and business is clarified; 'structure' 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 better understanding of their role and responsibilities.

BDO Kendalls family constitutions

BDO has done extensive work over the years to help families to understand and manage the interaction between these systems. We believe that many of the problems are inevitable and can therefore be predicted before they occur so families can prepare practices and procedures to mitigate against them and deal with them harmoniously.

Much of our work with families to improve governance results in a Family Constitution. A constitution 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. This provides clarity for those involved within the business as well as family members who are not involved.

The types of issues that constitutions will typically deal with include:

• Long-term strategic goals, visions and values
• The family's involvement in the business
• Succession management
• Board membership
• Communicatio
• Family Councils
• Governance eg. Family Council
• Rights and responsibility of shareholders
• Share ownership, dividends and voting control
• Employment of non-family personnel
• Family meetings.

The process of writing a constitution is not a straightforward one. It requires high levels of commitment, a willingness to listen and talk to one another frankly and 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 will result in significantly increased clarity and discussion within the family group.