7 steps for setting up sustainable family business governance

By Kristen Armstrong

A number of practices are common in business families who take a long-term view. Best practices for setting up sustainable family business governance include the following:

1. Discussing the potentially sensitive topics of ownership and management of the business -- what the business means to the family and has meant historically, as well as the family’s vision for its future. The family’s shared vision and mission should be articulated, or reviewed and re-enlivened if they already have been codified.

2. Examining how decisions have been made, including how power and resources are allotted, and discussing what changes will be required in the future to support clear and effective decision making in the family and the business.

3. Establishing forums to achieve family, business ownership and management objectives. These forums include family assemblies, family councils, enterprise boards and shareholders’ councils. They take time, sometimes years, to put into place.

4. Reaching agreement on how information will be communicated, and who may be privy to various types of information. (Surprise in a family business is rarely a happy thing.)

5. Educating the family. Education enables individuals in each of the three spheres of the family enterprise -- owners, managers and family members -- to understand the world from others’ perspectives, and to become savvy and cooperative stakeholders. Education also builds skills that support a shared family identity and culture.

6. Creating policies and agreements that maintain the family’s open communication, interpersonal trust and collaboration -- before disruptive collisions occur. Employment policies should be developed before the next generation is ready to enter the business. Distribution policies should balance the needs of the family and the business in the right proportions.

7. Revisiting all of the above from time to time, in order to keep up with changes in the family and the business.

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