What is Governance?

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We often hear that ‘Governance is the answer’, but have you ever wondered ‘What is Governance?’ Well, if only there was universally accepted definition, it would make life easier. The truth of it is that depending on who you are talking to, governance will mean something different to them too. For example, the governance a lawyer may be talking about is going to be different to that an accountant would talk about. 

Not helpful, we know but in general terms we can summarise governance as:

 ‘The collection of rules, systems and processes put in place to help set and deliver the objectives of the family and the business whilst holding the business and its key stakeholders to account.’

Professor John A.Davis put it more succinctly when he said: 

‘It is bringing the right people together at the right time to discuss the right things’

This is important for family owned business because unlike non-family business there are additional complexities that need to be managed in a family owned business.

This three-circle model explains that complexity and highlights why governance is likely to be beneficial to a family business as it allows each of the ‘systems’ at play to be managed.

Given the additional complexity that exists as a result of the ‘family system’ present in a family business it makes sense to introduce forums, processes and protocols to help to manage this complexity.  

It is likely that as your business and family grow that more governance is going to be needed to help facilitate this growth. This is often referred to as ‘professionalising’ the business. 

Governance can be split into ‘Family Governance’ and ‘Business Governance’.  

Family Governance:

       Family Assembly

       Family Council

       Family Charter

Business Governance:

       Board of Directors

       Shareholders Agreement

       Articles of Association

 

What is Family Governance?

As the name would suggest this focusses on how to get the best out of the family system that is unique to family businesses. This isn’t exclusive to those in the family that own shares but includes the whole family.

It helps to create the right forums for discussions to take place in the right environment, with the right people discussing the right stuff, back to Prof. John Davis’ definition.

Families are emotional systems and when emotions are involved, very often logic takes a back seat. Effective family governance can help to manage some of this emotion and deal with these common challenges: 

  •        Clarification of roles and responsibilities
  •        Ensures the business is run professionally and responsibly
  •        Helps to set the direction of the business
  •        Ensures consistency
  •        Can be used to reinforce the values of the business.
  •        Creates transparency, accountability and fairness amongst all
  •        Creates affective communication
  •        Manages the complexity of family dynamics within the business
  •        Helps with dispute resolution and prevention
  •        Risk management
  •        Helps create the right boundaries and controls within the business
  •        Helps to manage the personalities within the business.
  •        Increases the overall well-being of the family
  •        Ultimately it can help ensure the survival of the business between generations.

Family governance is voluntary but is growing in popularity as the benefits become clearer. The term ‘professionalising the business’ may sound a bit patronising but it is an essential part of the life cycle of a family business. 

Often facilitation is needed for the discussions that result in the creation of this family governance and our expertise and experience has proven invaluable to many family owned businesses. 

We would be delighted to help you with your own governance journey, just get in touch if you would like to start that process.