Family business | Governance | Private Wealth

Family businesses – get your governance right!

When thinking about whether to join the family business, it is often wise to give some serious thought as to how the relationship between the family and the business is managed.

Governance is the means by which communication between the various stakeholders (in this context meaning family, owners, those working in the business and the various combinations of these stakeholders) is organised and functions – which is critical to a properly functioning family business.

A lack of an appropriate, proportionate and well considered governance structure is directly or indirectly responsible for many of the communication, relational and organisational issues that family businesses tell me they are experiencing.

Governance in family business needs to be proportionate to the complexity of the business and family in question.  For example:

  • at one extreme, businesses such as seventh generation £1.4 billion turnover family business Clarks (shoes), use a separate company limited by guarantee as the vehicle for their family council;
  • at the other end of the spectrum, a relatively modest first or second generation is unlikely to need a sophisticated governance structure, but should ensure that roles and responsibilities are made clear and that the channels of communications are open and result in a constructive exchange of views.

Start by asking yourself whether the governance of your family business is suitable for its size and age.  Ask yourself the following questions:

  • Do the various stakeholders (i.e. family members, non-executive directors, employees, shareholders) understand their roles and responsibilities and how they fit into the bigger picture?
  • Do the various groups of stakeholders meet regularly (perhaps at shareholder meetings, board meetings or family councils) to exchange views and agree actions?
  • If there are family members who do not work in the business but who own shares, is there a clear channel through which those family members can be heard (such as at a family assembly or less formal regular family meetings)?
  • Does the business have proper processes in place to ensure that the business can function properly?  These would be things such as an up to date business plan and employment policy, compliant employment contracts for all members of staff including family members who work in the business and sensible and proportionate operational processes and procedures.

If the answers to any of these questions is no, it may be worth digging a little deeper before joining the family business.

For more information on Family Business please contact Emma Rudge, Senior Associate on emma.rudge@michelmores.com or 0117 906 9348.