Governance in a family enterprise entails a comprehensive system of rules, processes, and structures. This system plays a pivotal role in steering decision-making, delineating roles, and ensuring accountability. Resisting the temptation of informal approaches, well-defined governance mechanisms are essential for fostering harmony, mitigating conflicts, and maximizing performance. The overarching objectives include promoting transparency, safeguarding family interests, and facilitating a seamless leadership transition.
Culture plays a significant role in shaping family dynamics. Different cultures have distinct values, norms, and expectations that influence how family members interact. In some cultures, collectivism is vital, emphasizing close-knit relationships and communal support. For example, the collectivist culture in Asia.
In some families there are individualistic cultures that prioritize personal independence and autonomy. These cultural nuances influence communication patterns, decision-making processes, and the roles family members play within the unit.
Joint families have been more conventional in Indian family businesses. They serve as a strong foundation of trust and loyalty, thus being an advantage. However, they have their own set of challenges to manage. Over time, however, nuclear families are becoming increasingly common in the Indian family business ethos.
The values and principles practised by the founding generation through narratives and experiences serve as a guide for next generations.
Family traditions, rituals, and customs are repositories of shared values.
The way family members communicate and interact with each other shapes their understanding of the family's core values.
Family leaders who embody the values and exhibit the relevant behaviour serves as role models for the younger generation. Their actions greatly influence how values are perceived and embraced within the family business.
In a family business survey conducted by PWC (2019), Maltese family businesses reported that the values and purpose have framed their company’s vision and are communicated on an ongoing basis to employees.
The values and purpose stemmed from those running or owning the business and have become stronger over the years.
"The Maltese people are characterized by their use of the Maltese language and adherence to Roman Catholicism, they trace their origins to a diverse mix of colonists from Sicily and Calabria who repopulated the Maltese islands."
Mr. Luiz Alexandre Garcia, the third-generation Chairman of Brazil’s Algar Group described it in this way: “Algar Group has operated for 90 years in many different fields and the business has changed a great deal in that time. But the principles, purpose and values of the company have never changed. That’s our primary legacy. It is what has brought the company to its position today and what will carry us into the future.”
Source: KPMG- The enduring legacy of business families 2021
Mr. Luiz Alexandre Garcia, the third-generation Chairman of Brazil’s Algar Group described it in this way:
“Algar Group has operated for 90 years in many different fields and the business has changed a great deal in that time. But the principles, purpose and values of the company have never changed. That’s our primary legacy. It is what has brought the company to its position today and what will carry us into the future.”
Implementing a comprehensive family governance structure involves a systematic approach:
Evaluate the family's needs, values, and goals to tailor the governance structure accordingly.
Develop a clear framework with roles, responsibilities, and communication protocols, aligning them with the family's vision.
Provide ongoing education to family members about the significance of governance, their roles, and the business itself.
Encourage active participation and open dialogue among family members through regular meetings and forums.
Flexibility and adaptability are key, allowing the structure to evolve alongside the family and business. The best governance structure for a family business will depend on the specific needs, dynamics, and aspirations of the family. Careful consideration of factors like size, complexity, and family culture is vital for establishing a framework that fosters both family harmony and business success.