In its broad sense governance is the set of organization, systems, processes and practices that are designed and put in place to govern an entity whether it is a country, a company or a family. Family firms that wish to continue their legacy over multi-generations would need to articulate and practice their own governance; it is quite unlikely that family firms can thrive over generations without such governance. The business literature often refers to the 30%, 13% and 3% survival rates of family businesses into 2nd, 3rd and later generations. One key reason for the low survival rates is the absence of clear and established governance.
A family governance structure and system has several components that we will talk about in coming articles; these are tailored to the specific situation and requirements of the family. It is important to highlight this point as there might be a tendency to dwell on ‘right’ and ‘wrong’ descriptions while sidelining some real issues and not addressing them thoroughly enough.
Family-owned businesses evolve through four generally recognized life cycles of increasing complexity: Founder Owner; Parent-Offspring Partnership; Sibling Partnership; Cousin Consortium.
Factors contributing to the increasing complexity include lack of strategic planning; succession issues; increasing number of owners; reduced family bonds; differences in opinions about the business; money issues. Also, through this evolution process the overlaps between the Family, Business and Ownership systems often tend to increase resulting in ambiguities about roles and responsibilities and more chances of conflict.
A family governance structure addresses these dynamics and creates clear boundaries that enable families to successfully navigate through these challenges and perpetuate their legacy and business into the next generations.