How family governance improves business performance

By Charlie Carr

In second and subsequent generations, family governance often has a substantive impact on the stability and profitability of a family business as the family grows and the number of stakeholders expands.

It may be hard to understand how relationships between family members who don’t work in the family firm can affect the business. Here are three ways in which family governance influences business performance:

1. Family vision. The family’s vision sets the tone for who the family is and how they interact in the community, which in turn sets the tone for the business.

A clear vision can help the family and staff work together for greater growth and profitability. It is hard for employees to move toward a vision when the family doesn’t know, or doesn’t believe in, the vision.

2. Family cohesion: We can share examples of family business staff who were pressured to take sides in a family feud, and even of family boards that consistently vote 2-1 against a particular branch of the family. Other families have split their business or faced years of litigation because of family squabbles.

Aside from the financial cost of these challenges, the business has a hard time growing or making strategic acquisitions when leadership is distracted by internal battles. Defining and implementing family governance does not guarantee such things won’t occur, but it creates an avenue for identifying and managing issues before they become serious — making it less likely that they will harm the business and the family’s continued ownership.

3. Employee stability: No matter how large and talented the family, growing and succeeding in business will involve attracting and retaining talented non-family members. Clearly defining and implementing family governance can improve tenure and stability for these non-family employees.

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