Who decides what in your family business?
30th March 2016
Governance in a family business must provide a clear answer to the question, “who decides what around here?”
The statement sums up the balance of power in a family business and if it is unclear there is plenty scope for the type of disagreements that family businesses really want to avoid, like the following.
The reality in a family business is that power is shared among the board, the current owners and the wider family in a way that is subtle and often opaque, but it works so long as everyone understands that this is how we do things around here.
But those undestandings can easily lead to misunderstandings, so it is in everyone’s interests to clarify how power is shared. This is how you do it.
It starts with the owners on the basis that it is ‘their’ business so they can decide what power they want to reserve and decision making cascades down from there.
1) What decisions do the owners want to make as owners?
For example, should the owners have a say in the following:
2) What type of power do the owners want to reserve in respect of these matters?
These represent different levels of decision making power or influence, and they all matter. The right to be informed of certain board decisions might sound weak, but the added transparency will certainly make the board think carefully about their accountability for the decision.
3) Are there any decisions that the owners want the family to be invovled in?
For example, the owners might feel that the wider family should have a say in changing the corporate brand because it is also their family name. Or, they might want the family input on matters where the family will be affected by the outcome of a decision, such as introducing a policy on emloying family.
Some might argue that the family should never have such power, but I think that is naïve. If the family are going to be involved in some decisions because the owners want this to happen the only choice is whether it should be allowed to go on in the shadows or made part of the decision making process.
4) What type of power do the owners want the family to have in respect of these matters?
It is unlikley that the family, however that group is defined, will be delegated the power to make decisions but it is conceivable that they will have either:-
5) Every decision that is not reserved for the owners or the family is, by exception, delegated to the board.
This is the cascade effect. If a decision is not reserved it is assumed to be delegated. This helps the board, if necessary, to stand up to any attempts by owners or family to exert more control than has been reserved for them. The board can say, ‘we agreed what decisions were yours, so the rest is down to us.’
This approach creates a bespoke balance of power and clarifies, “who decides what?” It is pragmatic in that the owners, the family and the board know what is expected of them and what they can expect of each other. With this level of transparency, there is more chance of people being held accountable for their actions and less risk of disputes that start with the question, “why did you do that?”