Advivo Managing Partner, Leon Stephan, explains why all family businesses need good governance to thrive.
It is common knowledge family business is the engine room of Australia, representing approximately 70% of all Australian businesses and employing approximately 50% of the workforce. One of the strengths of many small/family businesses is being nimble/agile and able to make decisions quickly and capitalise on opportunities.
Many also believe compliance regimes and structures can hinder agility and reduce the opportunity for quick decision making if and when required. I disagree with this belief and argue the opposite – that a good compliance regime and framework can accelerate good decision making by creating the platform for well informed, inclusive, independent and unbiased business decision making . This is particularly important in family businesses, as there are other dynamics at play. Remember, we are talking about decisions affecting the business (which will ultimately affect all family members), however, the in-built family biases of parents, age, etc. should not be an influence in the business decision making process.
Setting Out Roles & Responsibilities
Evey business should have clear roles and responsibilities, and these ideally should be documented. Business roles do not include mum, dad grandpa etc. People should be in a role in recognition of their skills and expertise, and assume responsibility and to a degree some autonomy for their role. The responsible person/role is charged with the duty of providing concise information to the leadership group for decisions relating to their role or responsibilities, and where appropriate, collaborate with others to achieve this so informed decisions can be made.
Addressing Challenges that Arise
Similarly with family business, because of these competing dynamics, it is much easier for frustrations and conflict to raise their head. If a well documented compliance regime is in place the ground rules are set and the opportunity for misunderstandings and feeling of inequity can be avoided or addressed easily by addressing non-compliance to the agreed policies.
The larger the family business, and the more branches of the family tree that are involved, more potentially there is for more challenges arise. In businesses there is often the “Water Cooler “ discussion where the rumour mill gets going and can become very counter productive and in some cases harmful to a business culture. Where there are multi-generational or family branches involved, it is easy for family members to go home to their respective houses and have discussions in a similar way that cause feeling of inequity or similar. Good open and honest communication in any business is hard enough, let along between family members with competing interests and other members of their immediate family that may have different views. This can get even more complicated when death or divorce is introduced.
I have highlighted a few challenges that can present themselves – and all too often we hear “Ah, but that won’t happen to us”. I wish I had a dollar for every time I had heard that and it was not the case!
The Solution
So what is the solution? The solution has to be a well-documented compliance program that would include company constitution, share holder’s agreements, family business constitution, policies and procedure, role clarity and defined responsibilities all of which needs to be accompanied by clear open and honest proactive communication, because in my opinion, familiy businesses need compliance more than any other because of the mixed family/business dynamics that prevail.
As always we are here to help – so please contact us for assistance on managing your business’s governance.
