A family enterprise faces complex challenges, many of them outside the business proper. These challenges are concerned with how the family develops nonfinancial “capital” and how they exercise positive oversight of several family enterprises.

To achieve this, a business family develops governance. It must govern not only its enterprises but also govern itself as a growing, often diverse, family. With many members and goals, the extended family must organize working groups, policies, roles, decision authority, and investments for profit and philanthropy.

Both the various businesses and the family beyond the business are large and complex operations. Mission and values alone do not do anything for a family unless they are actively implemented. These aspirations need more than good intentions; they need goals, policies, organizational structures, resources, planning, and commitment to be realized.

Outside the business, generative families create a parallel family organization that meets regularly and organizes a rich program of family activities that goes beyond the business. While many families have family organizations and reunions, a generative business family seems to need this more formal family organization in order to link family and business concerns, as well as express its values.

With regular whole family gatherings, business and educational events, plus a family council to organize family events and educational and philanthropic activities, as well as the connection of the family to its various business and financial ventures. Family governance then connects family activities to business/financial governance of boards of directors and trustees.

The family has several tasks that are separate from the business operations:

  • Develop caring, active family relationships across each branch and generation.
  • Align interests and values around business and management of family wealth.
  • Define, initiate and organize family social, philanthropic, and educational activities.
  • Manage the boundary between family and business so that family members are treated fairly and family matters do not undermine the business.

In order to develop a family organization, important guidelines must be in place, including ensuring transparency, providing information (with an invitation to comment), and sharing ideas (but not making decisions).

As a family leader stated, “It’s critical to our success that communication channels with family members remain transparent in both directions. That’s how we ensure there’s trust, harmony, and support from the family.” 

Inclusiveness is a core aspect of building relationships; an example of this is inviting family members who live far away or pursue independent careers to get to know each other. While they may not be full owners, they can still feel as if they are involved.

The family then selects an organizational and leadership team who is separate from their business leaders. This leadership team, often called a family council, is elected by the family to help organize their many activities. The council is the leadership group that sets up and oversees family activities just as the board of directors oversees the business.

Setting up a council allows the family to give formal authority to the second set of leaders, who care about the family relationships and possess emotional intelligence. Their goal is to develop the human capital of each rising generation member of the family. They can also resolve conflict and offer fair practices and decisions that respect each individual, not just the major owners and shareholders.

Family governance offers family members who are not business-oriented a pathway into engagement with the family. They can become family rather than business leaders and help the family in nonfinancial realms. In generative families, the family side of governance has equal importance and status with the business side and enables the family to pursue activities as a community.

Learnings from long-lasting global business families

A family enterprise usually has some sort of board of directors or owners that oversees the business. That board develops and changes its form as the family and the business grows. That’s one element of governance. But as the family grows, they also begin to organize family activities and a family organization, such as through a family council. These two pillars of governance need to be differentiated while they work together to create a generative family.

Convene regular family meetings

Generative families are concerned not just about the financial returns of various enterprises and shared assets but with what they are doing as a family. Success means achieving value-based returns in each of these entities. Generative families have a strong need to reach out to and include the rising generations in their work as a family. They see their children as their future and actively prepare them for the future leadership of the family. They hold regular family meetings to learn together, get to know each other and work on projects and new ideas together.

Set up a family council 

As the family grows to include more than a handful of members, it needs to define a small group that organizes, communicates, and holds family activities. These activities include regular, often annual, whole-family vacations or retreats and other groups that take care of philanthropy, family property, vacations, and education.

A council is named, often including a representative of each family branch, to set up each family activity and make sure it happens. A family council can be as active and important to the family as its business board. In the first generation, a family may have some family meetings, but there is little need for a formal family council.

As second-generation siblings marry and their third-generation children grow up, the family wants to go beyond meetings, to actively set up some shared activities for the family, such as family vacations, managing family vacation houses, telling the family story, and educating the rising generation.

Develop a professional board 

A family business can have a single board represent the owners if they own a single legacy business, but there may also be several boards if the family also has a family office, foundation, or real estate or land trust.

These boards include some family members and, over time, begin to include nonfamily independent members who help the family apply the best business principles and keep the business profitable and innovative.

Write a family constitution 

The constitution is written by the family, drawing on legal agreements, but going further to define each element of family and business governance, what it does, how it is organized, how decisions are made, and what family members are responsible for and expected to do.

This is shared and agreed upon by each family member and is a living document that offers a road map for the family. It is drafted by the family, often with a consultant as a resource, with various parts contributed by each family stakeholder group. It begins with a short statement of the mission, vision, and values of the family, then outlines how the family is organized and works.

This article is part of an ongoing series highlighting Dennis Jaffe’s findings from successful family enterprises. The first two articles can be found below:

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