It’s a family affair - the need for governance in a family business

Posted on 18th April 2017 by Streets -  What's trending?

Image to represent It’s a family affair - the need for governance in a family business

In corporate businesses decisions will often be taken more formally in a Board meeting in accordance with a formal decision making process. In contrast the decisions involved in running a family business are as likely to be discussed over Sunday lunch and subject to the nuisances and emotions of all that makes a family a family. Equally it is often the case that many a family business has more than a sprinkling of entrepreneurs at their helm, individuals who are typically more excited by doing the business than managing the business.

Many family businesses can and do trade for more than one generation. However it seems with an ever changing world the future and success of such entities will be dependent on ensuring some form of protocol and guidelines are in place. Typically differing views on the direction and even management of a business can and does lead not only to disharmony but also to distractive fractions and overall decline in financial performance.  The counter point is that with good governance in place, a well run family business can yield good financial returns and also provide for that enhanced sense of fulfilment and pride.

Where then might those running a family business start when it comes to good governance and getting their house in order?

The starting point must be to collectively share what vision members have for the business and the values they attribute to them. Certainly a vision that focuses on business succession beyond the current generation for example is very different to that of a business that looks for an exit or sale. Family members also need to consider what is important in terms of the values they would like their business to be known for.

For some family businesses the exercise of sharing and agreeing a vision can be more or less challenging. Those who already have a more collective and harmonious vision for the future and agree on the values they wish to extol will undoubtedly find the task much easier. Those with less harmony may find the exercise is made easier by using a third party facilitator, a business acquaintance, or even better perhaps an unknown adviser.

The next step is to create what might be described as a family charter; a document or agreement that outlines the family’s vision for the business. In addition such a document can and should perhaps include other unique aspects often associated with the running of a family business such as guidelines as to the employment, role and responsibility of family members, their admission into the business and their cessation of association. The document may also want to cover financial rewards for family members who retain an interest but are not actively involved, as well as treatment of external investment or management.

It may also be desirable whilst working through this exercise to consider reaching agreement around how decisions will be taken along with the format for meetings and recording the outcomes of the same.

Hopefully at the end of this exercise those running their family business should be clearer about the decision making process, have relevant controls in place and have an agreed approach to sharing information as well as being better placed to deal with the unexpected. No doubt the business will still be the topic of conversation at many a family gathering but hopefully such conversation might be more healthy and harmonious.

No Advice

The content produced and presented by Streets is for general guidance and informational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Furthermore, it should not be considered a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset. The information provided by Streets is of a general nature and is not specific for any individual or entity. Appropriate and tailored advice or independent research should be obtained before making any such decisions. Streets does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of obtaining Streets' visual or audible content.


The content used by Streets has been obtained from or is based on sources that we believe to be accurate and reliable. Although reasonable care has been taken in gathering the necessary information, we cannot guarantee the accuracy or completeness of any information we publish and we accept no liability for any errors or omissions in material. You should always seek specific advice prior to making any investment, legal or tax decisions.

Expert insight and news straight
to your inbox

Related Articles

Budget 2024: Changes to the Non-Dom Regime and their Implications

In the wake of the Budget 2024 announcements, significant changes to the UK's non-domiciled individual (non-dom) regime are on the horizon, with scheduled implementation for 6 April 2025. However, uncertainties loom, especially considering the potential shift in political power after the next General Election. While the outlined reforms ...

How do you avoid financial forecasting that ends up with rain instead of sunshine?

Financial forecasting can often feel like the weather forecast, financial predictions not always being as rosy as planned, or in many cases, as hoped - a bit like the weather whilst sunshine is predicted rain all too often can be the outcome.  Whilst many businesses will look to ...

Working Capital Cycle

The longer the working capital cycle, the more time it takes for your business to get a robust cash flow. It’s good practice for businesses to manage their cycle by looking at each step where possible. This could be by selling stock or product quicker, collecting monies owed ...

You might also be interested in...