Simplifying Family Governance

Simplifying Family Governance
Written by Anil Sainani | Updated: May 9 2008, 04:54am hrs

Majority of the family business owners today in the country would be aware of the fact that family businesses across the world, while consistently delivering superior financial performance, fail on the test of sustainability. About less than 5% of family business across the world, reach fourth generation. This has been attributed to a host of issues varying from hard ones like choosing the next successor, roles and responsibilities of family members active in business, performance evaluation of family managers to softer ones like attitudes, values, differential visibility of family members in media, different life styles, etc.

Research in the field suggests that developing a family constitution with a clearly defined philosophy, policies, processes and structures is the way to institutionalising family business governance. While most business families are enthused by the idea of proactively setting up family governance systems and processes in their family, very few actually go about doing the job.

When one mulls over the reasons for the poor follow-up action, the answers are quite obvious. Bringing family members to discuss contentious issues like roles and responsibilities, compensation and performance evaluation and soft issues like family values and code of conduct is very difficult. While hiring a consultant/adviser to facilitate these meetings could solve part of the problem, yet family members need to express their differing views on various subjects and try to arrive to common answer.

Those families who have succeeded in setting up these policies and processes say that it took them anywhere three to five years to complete the exercise. If one assumes that the difficult and cumbersome delivery mechanism is the key bottleneck in the poor implementation of the idea of family business governance, the challenge before any one working in this area is to come up with a new model that can compress the whole exercise into practically manageable limits.

The goal of the new model could be to help the family members develop the family business constitution within six months . Also at the end of the process all family members should have clearly understood the concept of family governance, developed key policies, procedures, structures and the family should have a clearly identified lot of parking issues which could be dealt with in future.

This could be done in five stages. The first stage would include one-day introductory workshop on family governance to introduce the concept and facilitate understanding of the basics. In the next stage one to one sessions with the advisor/consultant are advised to help individual family member to crystallise their thoughts on the key issues. Stage three would need a five-day off-site workshop, where the family does intense work in understanding different concepts of family governance and develops the first draft of family constitution. Stage IV would involve a three-month study and clarification period during which family members could study, discuss and reflect upon different provisions in the draft constitution. In the final stage V, a three-day workshop could be held in which all issues raised by individual family members are discussed and resolved and the family finalises and signs up the constitution.

Recently, I had occasion to design and implement the aforesaid model. The feedback and response of family members would appear to indicate that the 19 family members participating in the workshop experienced an attitudinal shift. Although this is just a one-off kind of experiment, perhaps it holds answer to the poor adoption and follow up action on the idea of family governance. And if the model could be replicated, it could mean significant value creation for all stakeholders of the family business in question.

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