Why are family governance institutions important for your family business?
They help strengthen the family harmony and relationship with the business! By allowing your family members to get together under one or more organized structures, family institutions increase the communication links between the family and its business and provide opportunities for family members to network and discuss aspects that can be related to the business or the family. These organized activities help increase understanding and build consensus among family members.
Why type of family governance institutions do you need for your family business?
It depends on the size of your family business, your family’s stage of development, the number of existing family members, and the degree of involvement of family members in their business:
- Step 1 at the founder(s)’s stage: Family meeting
It is usually informal, small in size, 6 to 12 family members, open to all family members, with additional membership criteria set by the founder(s) of your business. The frequency of meetings depends on the stage of the business’ development: when your business is growing fast, it can be as frequent as once a week. Meetings cover the communication of family values and vision, discussion and generation of new business ideas, and preparation of the next business leader(s).
- Step 2 at the Sibling Partnership/Cousin Confederation stage: Family assembly
Allows all your family members to stay informed about business issues and gives them the opportunity to voice their opinions about business development and other family issues. These assemblies help your family to avoid potential conflicts that might arise because of an unequal access to information and other resources. It is usually formal, and the size depends on the size of your family and membership criteria. Family members are elected by the family assembly as per criteria set by your family. Usually meets 1-2 times a year to discuss and communicate ideas, disagreements, and vision; approve major family related policies and procedures; educate family members on business issues; and elect family council and other committees’ members.
- Step 3 at the Sibling Partnership/Cousin Confederation stage: Family council
This is a working, governing body that is elected by the Family Assembly from among its members to deliberate more specifically on family business issues. The council is usually established once your family reaches a critical size, i.e. more than 30 members. It is usually formal. The size depends on membership criteria, ideally 5-9 members. It is usually open to all your family members, with additional membership criteria set by your family. It usually meets 2-6 times a year for conflict resolution, development of the major family related policies and procedures, planning, education, coordination of the work with the management and the board, and balancing the business and the family.
- Other family institutions
Family Office: this is an investment and administrative center that is organized and overseen by your family council. Family offices are usually very common within large and wealthy families in business, whose members express a need for getting personal financial, banking, accounting, and other advice. It’s usually set to provide advice on personal investment planning, taxes, insurance coverage, estate planning, career counseling and other topics of interest to individual family members. The family office is a quite separate operation from the business, although a few of its members may work in the business as well. The office is usually populated by professional managers who monitor the investments, tax compliance, insurance, financial planning, and intra-family transactions, such as gifts of stocks and estate plans.
Shares Redemption Committee: This committee is overseen by your family council, and it manages an established fund for shareholders who wish to cash in their stock at a fair price in order to pursue other activities with this money. The fund is usually built by contributing a percentage of the company’s profits to it each year.
Education Committee: This committee is responsible for nurturing your family’s human capital and its capacity to effectively collaborate in the tasks of governance. The education committee anticipates developmental needs of your family members and organizes educational events and activities for them. For example, this committee could organize an accounting seminar for your family members to help them read and understand the financial statements of their company.
Career Planning Committee: This committee serves to establish and oversee entry policies for your family members interested in joining the family business. This committee also helps monitor the careers of family members, offers career mentoring and keeps shareholders and the family council informed on their development. The career planning committee can also be very useful in advising family members who choose not to work in the family business on their external careers.
Family Reunion and Recreational Committee: The purpose of this committee is to plan fun and other events in order to get your family members together around recreational activities. The committee also organizes yearly family reunions designed to nurture relationships among family relatives by providing opportunities to get together and enjoy each other’s company.
For more information, consult IFC Family Business Governance Handbook
Explore more resources about IFC Family Business Governance
- How strong is your governance? Try out the Sample Listed Family Business Governance Self-Assessment Tool
- Why it is important to start planning the governance of your family business
- What governance is adapted to your family business growth
- Is succession planning taboo in your family business
- Roles and conflict resolution in your family business
- Family managers versus outside managers in your family business
- Setting up the shareholder policy of your family business
- How to set up an effective board in your family business
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