On this weeks show I am joined by Daniel Trimarchi from KPMG Private Enterprise. KPMG, alongside The STEP Project have produced a series of articles aimed at providing family enterprises across the world with practical insights on the key topics impacting them.

Our discussion focusses on the article called ‘Creating Value through Governance’

What is Governance?

The report describes governance as “..a system of interconnected philosophies, mechanisms, structures and practices that support good decision-making and communication among individuals. In a family business, these individuals have shared interests and goals as well as multiple roles as shareholders, operators of the business and members of the family”.

Governance is a wide reaching word and can mean different things when speaking to a lawyer than an accountant. That doesn’t make life any easier, but when discussing ‘Creating Value through Governance” we are referring more to family governance.

In early 2020 I recorded an entire series dedicated to explaining what family governance is and what particular forums you might want consider when looking to formalise what is already in place within your family business.

We make the point during the conversation, and it is something Ken McCracken has spoken about numerous times, but typically there will be ‘natural governance’ within your family and business and it will be what has got you to where you are now.

The ‘need’ to introduce more formal governance should be driven by you, as a family, deciding that there is a need for more formal governance. This may need to be facilitated by practitioners such as myself, Daniel or Ken but should be driven by what you as a family are trying to achieve rather than seeing it as a ‘tick box exercise’

You can find the series on Governance here, or individual episodes:

• What is Family Governance?
• What is a Family Charter?
• What is a Family Council?
• What is a Family Assembly?
• The Family Business Board
• Non-Executive Directors 

The evolution of your business will be linked to the need for the formalisation of governance. This will be a result of a growing level of complexity within the business or the family.

When setting out in business together much of the natural governance is based on trust and is broadly informal. The article argues that as the complexity of the business and the family grows, and the need for structure and rules outweighs the convenience of the natural governance already in place.

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Listen to the Episode here:

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The key to successful governance is for it to be both cohesive and flexible and we discuss the importance of this capturing multi-generational perspectives. It may be that as a family you are looking to formalise roles within the business, create an environment that encourages learning or diversifying away from the core business, or looking at ways to invest in the human capital within the family. 

What do we mean by ‘Value’?

The article focusses on creating value through governance, but what do we mean by ‘value’. 

In the context of family business, value can be difficult to define, especially if the intention is to retain ownership within the family. You may not be talking about value in a monetary way. 

There can be benefits from a monetary perspective from a well functioning and well governed family ‘system’ within a family business, after all a car with a good engine is worth more than one with a bad engine. 

However, the value also comes from an emotional perspective. Governance can help you define as a family what the purpose of the business is, what role the family can play in shaping the business and what role they can play as individuals. This may be as owners or future owners of the business , future employees of the business or future leaders of the business (or any combination of those), or outside of the family business entirely. 

It can help to remove the ambiguity that can often be present in the business owning family and importantly it can help to deal with the inevitable conflicts that can arise in a family business. 

With more businesses moving away from the traditional family owned and family run models to family owned and non-family managed models governance can provide a huge amount of value to the individuals managing multiple roles within the business and the family. 

Is now a good time to review your Governance?

With the pace of change in the world becoming increasingly quicker, and the fact we are living through a global pandemic it may seem counter intuitive to suggest taking a collective ‘deep breath’ as a family and reviewing how you make decisions, how you set strategic direction to those running the business or how you define who within the family can own shares or work in the business. 

I would argue that now may in fact be a perfect time to do this. Given that we are (hopefully) emerging from the global pandemic and our families and businesses have faced challenges that few of us would have predicted a year ago. What better time to review and reflect on how things have been impacted by what has happened in the world. 

Have you as a family operated in a way that was expected, are there any elements of the past 12 months that you may have done differently? What lessons can be learned?

This episode explores creating value through governance and the articles are well worth a read, especially as there are case studies and examples from all over the world of how other family businesses have benefitted from their governance. 

If you are looking for help or facilitation, please do get in touch using the button below or email me russ@familybusinesspartnership.com and I would be delighted to help.