Business Family Governance 2.0
10th November 2021
The latest report from the IFB Research Foundation, Business Family Governance 2.0, suggests that family governance plays a key role in achieving a multigenerational legacy in family firms. The standard approach to family governance tends to focus on one size fits all, whereas this latest research demonstrates this fails to recognise the specific concept of the enterprising family.
The report, authored by Dr. Claudia Binz Astrachan (Lucerne School of Business and Generation6 Family Enterprise Advisors), Prof. Dr. Isabel Botero (University of Louisville) takes an in-depth look at family governance practices in business owning families in UK and internationally. The project included a review of prior research on family governance, an international survey of representatives of business families, and case studies of multigenerational business families to identify best practice.
The research found that that, among the 114 members of business families who took part in the survey, around two-thirds reported having a family council (62%) and a family constitution (65%). Family representation in the businesses was strong, with almost all allowing family members to work in the business (92 per cent) or serve on their board of directors (93%). Most members of respondents’ business families reported that strict qualifying criteria were in place for family employees (85 per cent) and family directors (61%). Finally, many said their families offered multiple opportunities for the rising generation to engage with the business, such as summer jobs (54 per cent) and internships (48 per cent). In addition to the main survey, case studies were conducted with representatives from five multigenerational business families at different stages of their governance journey.
The report argues that a strong foundation of shared values, a common purpose, and trust-based family relationships facilitate the design and implementation of effective and sustainable family governance systems. The success and continuity of the family governance system hinges on the next generation’s involvement in family governance. Ownership competence allows family owners and stewards to make informed decisions that align with family and business values and objectives. The family plays a key role in supporting family members in acquiring these competencies. While family governance journeys may look very different, they take time - ensuring that every family member’s voice is heard in the process is crucial in securing buy-in for the family governance system can be a lengthy process that may require outside help.
The research findings form the basis for the six principles of good family governance presented in the report:
1 – Identify Your Objective(s)
2 – Make It Holistic
3 – Refrain from Using Structural Solutions for Emotional Issues
4 – Assure Fit
5 – Leverage the Process
6 – Involve and Educate the Rising Generation
In summary, the research found that business families choose formal and informal family governance mechanisms for different reasons, at different rates, and at different points in time. Understanding which mechanisms are more beneficial at which point in time is important when developing recommendations for best practice.
Despite prior research focusing on business-related drivers of family governance (e.g., firm size, age), the research points to the need to incorporate deeper level family variables – such as level of family cohesion – to understand what accounts for differences in family governance practices between business owning families.
Sir Michael Bibby Chairman of the IFB Research Foundation commented;
“For any business owned by an extended family, the report shows how shared values, a united purpose and a strong sense of connection, combined with a desire to remain together are key to the business’s longevity, based on the owning family, imbuing the business, and each other, with really strong social capital.”
