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Good Family Governance Starts with the Family Meeting
By Tina Di Vito, National Leader, Family Office Services
Governance is not a term most families associate with their own system of decision making and yet, in its simplest form, that is all it is.
- Children of business-owning families can remain interdependent on family for far longer than normal due to business ties.
- Interdependence can increase stresses within the family and create a need for more formality in the decision-making system.
- Regular family meetings are the start of a logical progression towards formalisation of family governance documents and structures.
For most families, the family decision-making system they experience is informal and relies on mom or dad, or both, making the key decisions for the rest of the family members. This hierarchy is both biological and economic in nature. Most children are dependent upon their parents for their basic needs until they reach an age where they can become independent.
Children will often allow a certain level of parental oversight to continue beyond their independence due to tradition, values, and respect. Sometimes the roles can reverse where older parents rely on their children but most children from non-business-owning families tend to leave the nest and become independent of both their parents and their siblings. This allows relationships to remain neutral and, to some extent, optional.
Increased Family Interdependence
In business-owning families, however, the influence of family members on each other’s economic and social situation may extend beyond normal cultural practices. Children of business-owning families might remain economically dependent on both their parents, their siblings, and even their cousins throughout their lifetime. This creates a level of interdependence that ties them together regardless of choice, relationships, or activity in the business.
Interdependence increases stress within the family and creates a need for more formality in the decision-making system. But many family members might not fully understand what that means or what a functional system might look like.
Introducing Family Meetings
The terms “family assembly” and “family council” are often used to describe a formal system of governance in the family circle. These structures are usually created when families reach a size and level of complexity that creates enough tension to require action. This is typically when the business operation is so large that relatives, such as cousins, are involved.
Before siblings and extended family members become owners, you can adopt a recognized leading practice to head off major issues: introduce regular family meetings to the family group to promote strong family relationships and a stronger family business.
The value of family meetings cannot be overstated and has been shown to form one of the top three correlating factors in family business success. Once implemented, these meetings can take on their own momentum, although this often relies on one or two key family members becoming champions of the process.
By starting with regular family meetings that begin to address the issues listed above, there is a logical progression towards formalisation both in the documents produced and in the structures created. Thus, the logical progression is towards a family assembly, a family council, and a family constitution. This can happen over time and should not be feared, as the family controls the pace of development. It might take some time to achieve but the results are worth it.
10 FAMILY MEETING GOALS AND BENEFITS:
Building a stronger family
Building a stronger business
Planning for the future ownership of the business
Planning for future family participation in the business
Helping children manage inherited wealth
Considering the succession process
Preserving family values, traditions, and history
Professionalising the business
Managing relations between the family and the board
Recognizing and resolving conflict.
Source: Family Meetings: How to Build a Stronger Family and a Stronger Business by Craig E Aronoff, John L. Ward