Christian Stewart of Family Legacy Asia explains how families can put in place a solid and sustainable governance system for family-owned businesses, to ensure their smooth running and avoid conflict.
Date: Apr 2012
Ultimately, the individual family members should be the shareholders controlling the business, he explained.
As a result, governing such businesses is about building the right forums and decision-making structures to facilitate this.
Avoiding governance failures
According to Stewart, research done into Chinese family-run businesses in Singapore and Malaysia, for example, concluded that the majority of them will fail because of internal conflicts.
That exists due to confusion between ownership and management roles, he added, or between between family and business roles.
In one case, he explained, three siblings had been working together to run the business as an effective tag-team. Yet each of them brought their own children into the business with a rule that every family member had to be treated equally – so the result was various cousins performing different jobs and all getting the same pay, but with differing ideas and without a hierarchy.
A forum such as a family council can help family members talk about the relationships between the family and the business, said Stewart.
This includes topics such as how the family is going to deal, as a group, with the typical, predictable conflicting issues which arise – for example who can work in the family business; whether family members get paid for their work; and whether family members get feedback and performance appraisals.
Tackling these and other issues involves creating family policies which enforce a business-like approach, he said, and ensure a clear understanding about the role of the shareholders in the family business to enable a balance where the professional manager can run the business without interference.
There are various consequences if families don’t have such forums and process in place, said Stewart.
Common in Asia, for example, is where the younger generation in a family join the business and think they own it, he explained. They then start telling the professional managers what to do, leading to those managers leaving because they feel mistreated.
Implementing effective governance
Part of the process in ensuring effective family governance is to start off with one-on-one interviews with the different family members, said Stewart, to listen to each person’s perspective about the various issues.
Step two is to bring the family members together to have a meeting to discuss all these views.
Ultimately, the key over the long term is ongoing communication with the family members via regular meetings for them to come together and talk.