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8 Essential Governance Tips for Family Businesses

Relevant For:

Family business owners and managers of growing medium and mid-market businesses.

Key Points:

  • Clearly define roles and responsibilities for management and the board.
  • Tailor board structure to suit business needs, considering non-family directors.
  • Make ethical and responsible decisions considering all stakeholders.
  • Ensure accurate and independently verified financial reporting.
  • Maintain timely and transparent communication of material matters.
  • Respect the rights of all shareholders, including non-family ones.
  • Implement and regularly review risk management processes.
  • Establish fair remuneration policies linked to performance to avoid conflicts.

Full Article:

Many family business owners hesitate to implement governance due to fears of losing control or the additional workload. However, the risks of neglecting governance are far greater.

Without proper governance, businesses risk devaluing their assets, falling behind competitors, and creating problems for future generations.

Here are eight practical tips to enhance governance in your family business:

  1. Management and Oversight: Define the roles and responsibilities of management and the board, ensuring clear separation of ownership and management. Consider appointing non-family members to key roles to enhance transparency and value. This allows owners and the board to focus on strategic planning rather than daily operations.
  2. Board Structure: Tailor the board’s size, composition, skills, and commitment to suit your business needs. Whether you establish a formal board of directors or a family council, ensure that the structure supports effective governance. Non-family directors can offer valuable expertise and perspective.
  3. Act Responsibly: Uphold ethical and responsible decision-making, considering the interests of all stakeholders, including owners, employees, customers, suppliers, lenders, and the community.
  4. Corporate Reporting: Ensure financial reporting is accurate and independently verified to maintain accountability, especially to family members not involved in day-to-day operations.
  5. Timely Disclosure: Maintain timely and transparent communication of material matters to all relevant parties, fostering trust and success.
  6. Rights of Shareholders: Recognise and respect the rights of all shareholders, whether they are involved in management or not. Address the needs of non-family shareholders to prevent conflicts.
  7. Manage Risk: Implement systems to identify and mitigate risks. Regularly review and update risk management processes to safeguard the business from potential failures.
  8. Fair Remuneration: Establish clear and fair remuneration policies linked to performance. Ensure family members working in the business are paid market rates to avoid conflicts with non-employed family members and other stakeholders.