Familiarize yourself with common terms used throughout our Knowledge Base.
The Board of Directors of a family business oversees strategic direction and governance while ensuring accountability to shareholders, employees, and the community. Board responsibilities encompass decision-making, risk management, and compliance with laws and regulations. The CEO reports to the Board, and the Board is responsible for CEO succession. Company by-laws outline the size of the Board; they may also specify whether non-family members, or independent directors, can serve on the board. Independent directors have no financial or other relational ties to the business. They are selected based on a range of characteristics including professional background, governance knowledge and experience, strategic thinking, and familiarity with family business culture and dynamics.
Understanding your business culture is not a given, even among the founders.
Culture might include creating family business traditions around key points in your business such as achieving a sales marker or celebrating “founders day” on the anniversary of your original incorporation. The goal is creating touch points that give your business its own character. Furthermore, there is value when your customers sense that your family business has a stable culture that extends beyond a single person to every member of the family business. To be clear, these touchpoints are important because they mark specifics such as your family business’s profitability, durability and reliability.
Family wealth refers to collective assets that a family owns, whether you consider yourself “wealthy”. You may have an operating business, a portfolio of assets, or your assets may reside in a family office or family foundation. Education and conversations about inter-generational wealth and effective relationships within the family can support good decision making and preservation of wealth.
There can be joy in family wealth planning. Your assets can contribute to community and charity work as well as provide opportunities for your family to enjoy favorite activities. All of these sustain the culture of your family and the family business.
A family council is where family members in a family enterprise come together to discuss and make collective decisions relative to their roles as owners and family members. The family council setting provides an environment to communicate, share information about the business, learn about governance, and make decisions about how the family can engage with the business. For example, a family may draft an employment policy or make decisions about philanthropy in the family council. Family council meetings are where a family can discuss their shared values and draft a Shared Family Vision statement. The family council provides opportunities for family members to be involved even if they are not interested in working in the business.
Governance in family business pertains to principles, structures, and documents which define the roles, rights and responsibilities of participants.
Governance controls the operation, process, practice, procedure, and policy of the family business. In setting up a family business governance structure, each stakeholder in the family-owned business has their place in the full picture of what the business is and does. Governance is built to reflect that place in a way that meshes with the reality and vision and values of your family business. Ideally, the business, the ownership group, and the family all have well-defined and understood governance structures.
Mentorship plays a vital role in family business success, enabling the transfer of knowledge, experience, and values from family members and other experienced professionals to the rising generation. It fosters personal and professional growth, promoting a smoother generational transition. Rising generation family can benefit from interpersonal mentoring that includes guidance about how to conduct oneself in professional environments and in a family business when your “name is on the door”; operational mentoring that focuses on job functions and roles; and legacy mentoring where they learn about the history and culture of the family and business. Programs can be formal or informal, but it’s a best practice to gather feedback to measure progress and ensure mentor-mentee fit.
Succession is a process, not a point in time. Businesses that are successful through multiple generations engage in education and preparation of the rising generation. Education can include learning about governance, your industry, and specific job functions. Preparation can include understanding your family business’s vision and values, mentoring, and leadership development, and is marked by deepening appreciation of self and others. Your business is strengthened in direct measure to the quality of preparation of the rising generations for their roles in the family business.