Family and Corporate Governance: The Cornerstone of Successful Private Business Owner Succession
By Cynthia Adams Harrison, Managing Director—Center for Private Business Owners
Family and corporate or business governance are both designed to support the family and to help the business achieve clarity, neutrality (best practices) and sustainability.
Communication is key to the success of any family and business. Both family and business governance structures are necessary to connect the family and future generations to a better understanding of all things business and for the business to continue to achieve growth and added value, for its stakeholders, employees and the community it serves. Effective communication creates clarity.
Governance bolsters creating neutrality and promotes best business practices. The establishment of family governance structures establishes safety for the family to share differences, discuss openly their ideas and promote a neutral environment where family decisions can be made with both the best interests of the family and the business at heart. Business governance supports best business practices and unites expertise from a variety of areas to extend business growth and value.
We know that families in business together are more successful when they address the needs of the family to organize effectively around the business and that the business itself is guided by expertise that will strategically drive business growth. These two structures combined secure sustainability for both the family and the business.
Best practices for effective family governance may include:
- Preservation of Family Legacy: There is probably nothing more precious to a family than its legacy, especially one that has owned a business together. Family governance unites generations as they reminisce and create best practices for future generations to participate in the family enterprise. It also creates an opportunity for the family to gather as this becomes more difficult in today’s demanding world.
- Effective Communication Practices and Conflict Resolution: The biggest challenge for most families and businesses is effective and consistent communication. Family governance enhances communication, supports family decisions and can often neutralize differences which can develop into difficult conflict which may be destructive to family relationships.
- Succession Planning: Family governance aids in clarifying the steps and processes involved in creating and executing a succession plan for the family and the business. Deciding on business leadership is a delicate topic and the family can decide on the appropriate qualifications and skill sets required to lead the business forward without it becoming personal.
- Aiding in Ownership Responsibilities: Governance educates those who are shareholders and those who will likely become future shareholders on their responsibilities as owners and provides instruction on how to be effective shareholders.
- Alignment and Education of Family Held Values: Families gather to learn of established family values that have guided the founders to the level of success they have achieved. Core values are what create a sustainable business. Family members learn how those values have guided decisions over time and contribute to the overall success of the business.
- Talent Development Opportunities: Family policies are often constructed in the family governance structure to address career paths for family members in the business. They also set entrance criteria of what it takes to work in the business and how they might achieve key leadership roles within the business.
- Sustainability: Family members learn how to appreciate their roles and responsibilities as beneficiaries of wealth and learn sound financial and investment strategies for retaining and assuring that wealth continues to the next generation and beyond.
Best practices for effective corporate governance may include:
- Shareholder Protection: Best practices in business governance highlight the need to protect shareholder interests and direct management to preserve and create shareholder value.
- Transparency: Transparency creates trust. Best practices disclose accurate and timely financial information to the shareholders which then informs effective decision-making.
- Ethical Practices: Similar to the importance of family core values, ethical practices drive the culture of a business, and it starts with the Board of Advisors or Directors. Holding all personnel accountable to a code of conduct and ethics creates consistency, trust and allows for performance to excel within the organization.
- Risk Management: Decreasing any liability is critical to the sustainability of a business enterprise. Business governance includes risk assessment and oversees management processes that may mitigate potential threats to the long-term viability of the business.
- Access to Capital: Formal governance processes can be attractive to investors and creditors and extend confidence in the business’ ethical and management policies.
- Legal and Regulatory Compliance: Effective business governance oversees any risk when it comes to adhering to applicable laws and regulations and includes compliance with financial reporting, taxation and other key regulations.
- Long-Term Value Creation: Focus is always on the long-term sustainability of the business and securing innovative value creation. This benefits not only the family, shareholders and employees, but also the community it serves.
Family businesses are a challenging proposition but with effective governance structures in place they are much more likely to succeed for future generations. PKF O’Connor Davies has the expertise to assist any owner with getting started or assessing how your current structures may become more effective.
If you are presently a client of PKF O’Connor Davies, please contact the partner in charge of your engagement or reach out to the following:
Cynthia Adams Harrison, Ed. D., LICSW
Center for Private Business Owners
firstname.lastname@example.org | 914.575.2744
To learn more about Cindy’s background and professional approach, listen to this October 2023 episode of the “Beyond the Balance Sheet” podcast.