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The importance of continual family governance

Family Governance requires continual effort by a family. Once an enterprise family has created family and enterprise governance, how do they maintain momentum? How can it remain current and adapt to new circumstances in a rapidly changing family and business environment?

Most enterprise families recognize the importance of preserving the family’s values. The same focus should be given to family governance. Often, families haven’t developed a healthy system of governance, or feel that once they have a governance structure in place no further action is required, and things will take care of themselves.

Unfortunately, the reality is that many families will wait until there is serious conflict or another problem within the family or enterprise before they address their governance. This change can be triggered by financial difficulties, disagreements, or often the passing of an owner. No matter what the challenge is, thoughtful and honest communication should be the foundation as a family evolves.

A family will sometimes create a formal governance structure ideally coupled with family charter or constitution; however, it is too easy for a family to lose focus as life and business goes on and other matters arise and neglect the attention and maintenance to the family governance.

Crisis in a family usually does not happen overnight; it is a gradual deterioration of the family system until things become too volatile to easily contain. Over time, a family system begins to experience stresses and a decline in the governance system. These strains are inevitable and indicate the need for intervention. This does not indicate that what the family is doing is wrong or a mistake, rather, it indicates a need for the family governance to adapt and evolve.

For a professional family advisor there are often easily identified warning signs in any enterprise family: an unhealthy family system can be the result of factors including ineffective leadership, inadequate succession planning, a decline in shared family values and purpose, undefined vision and goals, a strategy that does not meet the needs of the whole family, incorrect structures, poor investment planning policies and decisions, lack of integration of services and people, insufficient monitoring and reporting, incongruity or no engagement of family in a collaborative approach to mutual success.

Too often, a family will ignore these warning signs, or only discuss them in small groups, sometimes with blame and resentment attached to them, or a feeling of helplessness. It is important to understand that not collectively addressing issues constructively ensures they just build up over time. Often a crisis erupts, and the family goes into crisis mode, making an unsatisfactory fix to something that could have been more effectively attended to earlier.

Without a healthy, high functioning family system energy begins to fade, resulting in entropy and the family and enterprise may then enter a vicious cycle of decline. This may not be a financial disaster, but it may end the vision and legacy, and many families will have no option but to sell their legacy business and go their own separate ways. If there are major differences within the family, this may be the best outcome. However, a forced separation of the family enterprise can destroy the family’s emotional ties, and a family facing this scenario is well advised to carefully consider the pros and cons before they decide to separate.

An optimistic alternative is to find the energy to renew their vision and to develop a system to engage and collaborate. A skilled external advisor can help a family sort out differences and find common ground to work together to develop an effective family governance system beginning with a three-step assessment and review of the family dynamics and family system:

  1. Survey family members on their perceptions allowing every voice to be heard.

  2. Prepare to actively listen, not judge or criticize, and review the findings with the family.

  3. Valuable insight into the family system can inform interventions and engage all family members in a way that is inclusive and relevant.

Unless a family invests time regularly in listening, they may drift into a vicious cycle and a situation family members will regret.

By: John McDonald Chartered MCSI

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The importance of continual family governance

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