So what IS family governance? First, governance, in general, is the steering mechanism of an organization.
Its goal is to provide what I call a clear 3-D vision: the three objectives on which governance should focus:
- Definition: Creating and encouraging a suitable identity. (Who are we? What do we stand for?)
- Direction: Setting sensible and motivating goals. (Where are we going? What is our roadmap?)
- Discipline: How do we get there? What is our strategic plan? How do we maintain order along the way?
To achieve this 3-D vision, an organization needs to employ certain processes and tactics. In my research of centennial families around the globe, these processes fall into four major categories: documentation, celebration, education, and communication.
Here is another way to consider the governance question: (In these diagrams, the circle represents the family system and the triangle the enterprise system.)
In an early family enterprise situation, the governance of both the enterprise, whatever it might be, and the family is mainly in the hands of the parent figures. Hence, they are tightly knit together.
As the enterprise and family move into second generation situations, the governance mechanisms become somewhat separated. There may be some adult family members who are silent owners – they do not work in any part of the enterprise – and there are probably business managers and outside directors who are not family members.
Moving down generations to the third, fourth and beyond, in a multiple generational/multi-branched family enterprise, the governance of the family is even **further separated from that of the business.
- The proportion of family members to non-family members directly involved in the working areas becomes less and less.
- This can put a family CEO in the uncomfortable position of trying to keep the family and the enterprise components tied together.
- It also can add tremendous tension between the enterprise and family when interests begin to separate.
A clear Family Governance system can help bind the family and the enterprise together in healthy ways and help solve the common issues in these extended family enterprises: succession, conflict resolution, and the others we so often hear about.
- This governance system includes not only family managers and family directors, but also a family governance body with its own family officers.
- Such family leadership serves both to separate family issues from business issues and to keep the family connected to its legacy enterprise.
Though operating in the interests of the family, this governance body is still tied to its enterprise through family managers, family directors, and its budget.