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Happiness Tuesdays

Politics & Governance

Family Governance

I’ve been thinking a lot lately about creating a “family governance policy.”

I have seen different people’s social media posts lately about having a set of family rules and values that govern how the household operates.

It’s on my to-do list.

Some families write down their family policies on a big poster board, some make vision boards, and some make a whole art project out of it and make it beautiful. I’ve also seen some families who have it typed out in a binder.

While I have not fully figured out the mode that I will use yet, this idea has been rolling around on repeat in my head for awhile.

To me, having a governing policy for my household feels like a good way to teach my children values. I want to make it a family exercise where we sit down and create the family governance policy together. 

In this document, I want to include things like

  • how we choose to treat others, 

  • how we choose to respond to events that we dislike, 

  • how we will respect each other even when we disagree, 

  • choosing to live within our means, 

  • being grateful even when it’s hard

  • honoring our emotions while acknowledging that our feelings are not facts,

I know there are a lot more things that I want to add to this document, but some of it is still circulating in my head. My to-do list seems to be growing and this project continues to get pushed further down the list, so I need to make a point of prioritizing it and getting it done.

This type of a document needs to be fluid, in my opinion, especially when making it with smaller children. We learn and grow and sometimes the specifics of how our values get played out can change!

Is a family governance policy something that you would consider creating for your household?

Recommended Book

The 7 Habits of Highly Effective Families

Aug 05, 2014
ISBN: 9781466874329

Interesting Fact #1

Family Governance refers to the methods by which families and their enterprises are operated. It is a structured set of agreed-upon rules and procedures for the management and coordination of the affairs of a family. Family governance helps family members develop strategies to steer their affairs and ensure the maintenance of well-established values and wealth across multiple generations.

SOURCE

Interesting Fact #2

An effective family governance structure would typically address the following issues: decision-making, communication, management of family wealth, succession, and conflict resolution. The introduction of good governance practices in the operation of families has over the years turned out to be beneficial in the preservation of family values, and traditions, and ensures smooth generational succession and transition in ownership of the family business. It also helps promote accountability and transparency in the management of family wealth

SOURCE

Interesting Fact #3

The structure, policies and processes which are used to govern the interaction(s) of the family members with the family business in a fair and transparent way constitute the “Family Governance”.

SOURCE

Quote of the day

“In times of test, family is best.” —Burmese Proverb

Article of the day - Family governance systems in family enterprises

Subsequent transitions are even more disappointing, with only 12% transitioning onto the third generation and rates dropping to only 3% onto the fourth generation. Why are the success rates for these wealth transitions so bleak? What can a family do to improve their chances of sustaining family wealth through multiple generations?

Navigating the challenges of family, business, and financial matters is no easy task, particularly as families and businesses grow and experience the discomfort of change. Implementing a family governance system can help families maneuver through these challenges more easily. In addition, creating a system that addresses the needs and desires of the current and future generations while simultaneously maintaining the business’s success will allow the family and the business to thrive.

 

The challenges facing families

As businesses and families become more successful over time, they grow more complex. As a result, differing interests, views, and preferences may arise between the current and future generations regarding issues around the continuity of the family business and a potential wealth transfer.

Family dynamics become more multifaceted as the second generation grows into adulthood and expands their own families with spouses and children. This added family complexity may contribute to later disagreements, communication breakdown, poor decision-making, and possibly even the dismantling of the family business.

Family governance systems create the structure needed for all involved parties to: voice their opinions, create a space for everyone to feel included and respected, and help families arrive at agreed-upon decisions that will be followed in the future. All of these, in turn, create a more successful family dynamic and family enterprise.

Understanding family governance

Since every family and business is unique in the way they function, there is no one exact way to define family governance. Instead, it may be best to consider it a set of tools and processes the family can utilize to reach their common goal.

Unfortunately, many families do not take the time to fully understand their family governance needs or do not address the needs until a conflict arises – which is often too late.

With aging generations, family expansions, or blended families – it may no longer be the immediate family members directly impacted by a family enterprise or a potential wealth transfer.

Family governance best practices

Creating a Family Values, Vision and Mission Statement helps to articulate the collective overarching principles and vision that guide the family. Identifying family values is the first step toward decision-making on business strategy, organizational structure, family agreements, owners’ commitment, and leadership style. A family mission statement is a unified expression that all family members help create, outlining what the family wants to be and do together and the principles guiding their family.

Creating these documents is an opportunity to increase family alignment through rich communication within the family about family history, legacy and direction for the future.

Family Constitution includes the family values, vision and mission and outlines in greater detail a framework of clearly stated principles and protocols for how the family agrees to deal with family‐related matters that impact business issues.

The constitution would set out the rules and procedures under which the family is governed, including how it operates its shared assets, allocates its joint resources, resolves conflicts and conducts its collective affairs. It encourages a family to live according to their values and agreed-upon expectations.

Family Meetings can be the ideal environment for having conversations between family members as all are or will be somehow impacted by the business or the family’s wealth. Meetings are regularly scheduled in a neutral location, providing a welcoming and inclusive forum for communication across all generations to ensure each member has a voice.

These meetings can be facilitated by a third party to help guide the flow of communication and ensure that discussions remain focused and productive. Encouraging each family member to share individual values and their vision for the future helps families learn more about their members and how they can support one another in achieving their goals.

The family meeting can also be used as the setting for educating the next generation about how to be effective business owners on financial matters, discussing the family’s philanthropic giving vision and goals, or as a conflict resolution mechanism promoting greater alignment and respect between family members.

Family Council serves as the coordinating body for the family and comprises appointed members who represent the family in a family business system. This can be an effective vehicle for family decision-making, mainly where large families with multiple generations participate in a family business.

One of the primary roles of the council is to build unity and trust across the different branches and generations of the family. This enables the family council to act as the voice for the family in addressing key matters that impact the family and its relationship with the business.

Family Councils initiate activities and perform duties to help families stay aligned with their goals. Core responsibilities typically include: providing oversight and review of the family assets, being proactive in educating family members on the business and financial matters, offering guidance around making decisions that impact the family; managing issues concerning the family and its interaction with the business, such as a family employment policy; establishing and modifying terms for the family constitution, as well as planning and organizing family meetings, reunions and other family events.

If required, and as the family grows, subcommittees can be formed to address and manage specific areas such as communication, conflict resolution, education and stewardship, leadership development, transition planning, or decision-making.

Some family questions worth considering

  • How can we create better communication amongst the family as a whole?
  • How can family wealth be successfully preserved so it can be transferred to the next generation?
  • How can the business be effectively managed to transition it to future generations successfully?
  • Do the children want to become involved in the family business, and when is the appropriate time to introduce them? What about their spouses?
  • How will a business transition affect all family members, even those not directly involved?
  • How can we bridge the knowledge gap between the different generations?

Conclusion

Families successful at transferring substantial capital from generation to generation have benefited from best practices in family governance and a keen understanding that success in sustaining long-term wealth is not easily achieved and requires intentional effort and structure.

A family governance system is meant to be a living entity that builds on family values and traditions and should be revisited and amended as the family evolves.

We can help identify some of the key considerations regarding your family governance structure and assist in facilitating family meetings or helping you start creating your family legacy.

Question of the day - Is a family governance policy something that you would consider creating for your household?

Politics & Governance

Is a family governance policy something that you would consider creating for your household?