Family Business Governance – Series Summary

Family Business Governance

Hello and welcome to this weeks show. As I record this, there is sun streaming in the window and which makes a nice change as here in the UK it hasn’t stopped raining for what seems like about a year and a half now, we keep being promised that spring is just around the corner and then another storm arrives so I am not counting my bluebells just yet, but at least the sun is shining now!

Other than being obsessed with the weather I have been contacted by more of you this week, which is great. The reason I started the podcast is to provide hopefully informative content that is practical and I love hearing from you about how you are discussing it with your own family.

This episode is the last in the current series on Governance and I am going to spend a bit of time summarising what has been covered and bringing it all together, I am then going to go a bit deeper on a particular element of what can form part of the discussions on a family charter.

Before we get into that though, I just want to clarify something that I think is really important. None of what I have spoken about so far in the series is a mandatory requirement for your family business. It is very likely that some of what has been discussed is already in action within the business but in an informal way.

It is also really important to re-iterate that there are no ‘off the shelf solutions’ either. Despite what some people will try and sell to you.  

Why are Family Businesses more complex?

Family businesses are unique as there are 3 separate but intertwined systems at play, this is best illustrated by the three circle model that Renato Tagiuri and John Davis created at the end of the 70’s. I will be covering this in more detail in a future episode but I also had the privilege to speak to Prof. John Davis in episode 43 of the podcast. If you want to hear directly from the person who came up with the model, go and have a listen to that episode.

The model is based on a Venn diagram of three circles overlapping

What the model highlights is that there is a level of complexity within a family owned business that isn’t present within a non-family owned business. Whilst non-family businesses have to work with the ‘ownership’ system and the ‘management’ system and the overlaps that can exist here, the addition of a ‘family’ system. The ‘family’ system is an emotional system made up of feelings, relationships, history, sibling rivalry, family dynamics that non-family businesses simply don’t have to deal with.

It is the effective management of these intertwining systems that helps to dictate the success of your business and some families achieve this through informal processes, and others prefer to have formal forums etc to help achieve this.  

Introducing Governance to a Family Business

Bringing in Governance and introducing it to the family system, takes time and a great deal of care. We are dealing with an emotional system and so it is essential that any conversations about governance needs to be mindful of that.

This is why these discussions can take time, and whilst this can be off putting to some, for me it is a reason to be cheerful. It is something that takes time, care, patience and perseverance because it matters.

Family is precious. Being in business with your family is special, but because there is the addition of an emotional ‘family system’ there can sometimes be a need for some governance to help harness and enhance the passion present in your family.

There can often be a blurring of boundaries between each of the systems and so bringing in some governance structures helps to contain the relevant discussions and processes to those forums, this separation can help to make the operation of the business more efficient and focussed for the business owning family and all those within it.

There are various forums and mechanisms for delivering good, impactful and effective governance and the motivation for the introduction of this governance should always be to enhance rather than hinder the business or family or any individual within that family.

It should be seen as an enabler to help you to achieve what you are looking to achieve as a family and a good starting point to get a thorough understanding of this is to capture this within a family charter or constitution.

The Family Charter

To summarise, a Family Charter or constitution is a document that captures the views, passion, values and aims of the family and their attitudes towards things like ownership, next generation education, philanthropy etc.

Whilst these matters are captured within the family charter, the real value comes from the discussions that create the Charter. They may be discussions that you haven’t had with your family before, where you answer questions like ‘why does the business exist?’ ‘what is its purpose?’ ‘Should family members be able to join or own the business simply because they are family members?’

And because your family is unique the answers to these questions will be unique as well. It is not a case of there being a ‘right’ way of doing things. We know of families who have insisted on external experience before joining the family business and others where there is a job for family no matter what.

It needs to be what works for you, which again is why it should take time, care and patience because for it to be effective it needs to have buy-in from the family and become a living document rather than something you draw up and then leave on a shelf gathering dust.

It can and perhaps should be something that is reviewed regularly to ensure that it remains relevant, not just from a family perspective but also from a general ‘wider world’ perspective.

Martin Stepek, who was part of a very successful family business in Scotland has suggested that a family charter should be written in pencil so that it is able to be adapted as and when needed to remain relevant.

The Family Council 

The next governance forum we discussed on this series was the Family Council. The purpose of this forum is to encourage and create dialogue between the board of the business and the wider family, typically through the chairperson of that family council.

You might want to introduce one of these when the family becomes large enough to benefit from a conduit between the business and the wider family.

The family council has no formal influence within the business as this is the role of the board and management but it is a useful communication forum to allow the wider family to express their views to the board via the chairperson.

The Family Assembly 

These views can be gathered from family meetings / assemblies / forums etc. These are more informal gatherings that have a business element to them, but also a social element so that family members that don’t necessarily get to see each other much but may end up working together are able to bond.

They can also be a really useful forum to help create more emotional ownership of the business amongst the family. Particularly if there is a larger element of the family who are not directly involved in the ownership or management of the business at this stage but may be in the future. 

You can use them as an opportunity for the education and development of the next generation and to highlight potential stars amongst that generation for future leadership opportunities.

As a family grows there are a couple of things that happen, firstly there is the potential that the business will need to feed more mouths, and this may help to inform the strategic direction of the business.

In addition, as future generations are born and grow up, probably in separate homes, often separate towns and cities and very often with differing levels of enthusiasm towards the business. As such, you can start to see where and when these governance forums might become useful, as ways of developing emotional ownership of the business, creating relationships between family members who may not get to see each other very often.

These particular family governance forums can help to create unity and coherence in the family system and its relationship with the business.

The Family Business Board 

When it comes to the business itself, we talked about part of the ‘professionalisation’ of the family business is the introduction of a formal board structure. The board is responsible for setting and delivering the strategy of the business and is accountable to the shareholders for doing so.

In a family business, if we think back to the three circle model and the blurring of boundaries, you can see that a board member who is also a shareholder and a family member is going to be wearing three hats and so having the right forums in place to discuss the right things at the right time will help to create the boundaries that may be needed.

Having a family charter which informs the overall strategic direction of the business, aligned to the families vision and values can make the boards job easier, the board can make the strategic decisions in their meetings and report back results via a family council.

These are then communicated to the wider family via the family assembly or family meeting.

Feedback from the family is then passed back down the same communication routes so that everyone is clear.

The right people are talking about the right things, in the right places and at the right times.

Ideally with the outcome that everything is running smoothly.

Non-Executive Directors 

Another significant step is to introduce Non-Executive Directors to your board. They add expertise and experience in areas that may be lacking amongst the board, and they are able to provide an objective and challenging voice to proceedings.

Obviously this is a summary episode so I won’t cover these issues in much more detail other than to say that there is no ‘one size fits all’ solution that every family business must adhere to.

The forums that we have discussed are designed to enhance and improve communication amongst family members with the potential to improve business performance, but there is no such thing as ‘best practice’

How to get started

If any of what I have covered in this series resonates or you feel that it may be useful, get your fellow family members to listen too. Then have a conversation about it, top of mind should be ‘what are we, as a family, trying to achieve?’ each of you will have your own goals and dreams and aspirations, as will each and every generation that follows and you have an opportunity with the family business to help every single one of them to achieve those dreams, be that in the business or outside of it. 

The introduction of governance can seem intimidating but having a clear idea of why you are doing it, will help.

If you need help, I can provide that too. Drop me an email: russ@familybusinesspartnership.com

We can start with a phone call or if you are outside the UK a zoom call

As I said at the beginning of the show, this can take time and should be treated with care and just to round off the series I am going to give you an example of why.

Values versus Behaviour 

One of the elements of a family constitution or charter is a discussion around values. What values do the family hold that they feel are so important that the business should reflect those values?

How many businesses do you see with values statement that include the words, ‘Honesty’, ‘Integrity’, ‘Professionalism’ ‘client centric’ or phrases like ‘We care’ ‘we put the customer first’

Now I am not saying there is anything wrong with those necessarily but surely these are a given.

The reason I think these are a given is you never see the opposite, it is not a competitive advantage to say ‘We care’ because none of your competitors are saying ‘We don’t care!’

None of them have values like ‘Dishonesty’ ‘Unprofessional’ or statements like ‘we put ourselves first and if you don’t like it, up yours!’

Guess why!? They would be out of business before you know it.

So, if those values are important to you, which for most people they are, but everyone has broadly the same values as their company motto, how do you create a culture that lives up to those values?

My challenge to businesses when we are talking about these values is ‘Prove it’

How do you, as a business and a business owning family measure honesty, professionalism and integrity?

For me the first step is to talk about what they mean for you. What behaviours would you expect to be present within the business that show that the values are being lived on a day to day basis.

Here’s an example:

I visited a family business, went to their reception area and said, ‘Hi I’m Russ and I’m here to see the MD’. ‘They said take a seat and he’ll be down shortly.’  All OK so far.

After I sat down the people behind reception carried on their conversations, again nothing wrong with that, but then they began to mock somebody and started swearing. I’m an adult so I am not being precious about swearing but it gave me an impression of the culture that exists within that business.

Later in conversation with the MD I asked about the families values and vision etc, and he said that he was really proud of the work that they had done on their values statements and that they had spent half a day with the staff (not the family) agreeing what the values should be.

One such value, was ‘professionalism’. I asked him how he and his staff demonstrates this professionalism, he pointed to a poster on the wall that looked great and had ‘Honesty’, ‘Integrity’ and ‘Professionalism’ in nice writing!

My point here is that firstly, half a day is probably not long enough to decide as an entire business what the values should be and there may not be the emotional ownership levels amongst non-family staff members as there will be for you as an owner to generate the same level of buy in on these values.

I would have preferred to have these discussion with the business owning family and then focus on what behaviours demonstrate the values that are important to you and how you are going to know that the business is living up to those values and behaving in a way that means they become more than just posters on a wall.

‘We care’ – Prove it! Measure it

‘We put the customer first’ – Prove it! Measure it

It is then up to everyone in the business, and within the wider family to live up to those values through their own behaviour and again, this shouldn’t be hard work because they are your values. They haven’t been dictated to you, they have been arrived at through meaningful discussion, perhaps some challenging discussions but agreed upon as a foundation for the culture you want to create within the business.

Lets’ take the example of Timpson’s here in the UK. If you were to ask about how the family help to create and nurture a culture that is true to their family values they can point to a number of different initiatives, perks and benefits that they provide to their staff. They can ‘Prove it’ and that’s a big, National business.

That is why it takes time and needs to be done with care, because when it is done well and has meaning it will help to create a culture that will help you as a family to deliver on your own dreams and aspirations.

As I have mentioned throughout the series, I am here to help. I would be delighted to hear from you!

So that is it for this series on Governance, I hope that you have found it useful. The next couple of episodes will be showcasing some elements of business that again I think will be really useful, with the bonus being that they are interviews with family businesses.

We are going to be looking at the psychology of marketing and highlighting the importance of having an awesome customer experience on your websites.

After that, we move on to a series about Succession planning!

Until then, take care.