- Posted by Joseph Inskeep
- On June 20, 2017
- Family Business, Governance Improvement, Values
Family businesses make up a larger percentage of the economy than many people realize. The Family Firm Institute (FFI) notes that family firms * account for two thirds of businesses worldwide, between 70%-90% of global GDP and 50%-80% of jobs in the majority of countries. In the US, half of all publically listed companies are family firms. (http://www.ffi.org/page/globaldatapoints)
Information compiled by Tharawat magazine (Issue 22, 2014) indicates that family firms tend to be more profitable, less likely to lay people off or to raise debt, more likely to give charitably to their respective communities and, due to motivation for leaving a lasting legacy, tend toward a more long-term strategic outlook.
It’s easy to see why family businesses would be powerfully motivated to succeed for the sake of business success, family unity, the welfare and future work of offspring, and the legacy of family name. In short, they have every reason to aspire to effective governance.
But challenges can arise for these firms precisely because the domains of family, business, and ownership are distinct dimensions that overlap in the family business. The overlap can give rise to ambiguity, ambiguity can mask misunderstanding, and misunderstanding can lead to conflict.
The domains of family, ownership and business each deserve careful consideration. The Policy Governance system uses the technique of clarifying values through the use of policies that then guide decisions.
If a family business has chosen to have a governing board that has legal authority and legal accountability – (and not just an advisory board) – considering Policy Governance would be a good place to begin in sorting through the values involved in the various “hats” that the same people might be wearing in their roles as family members, owners and leaders within the operations. Working through who is accountable to whom, and for what results will bring significant clarity to the situation.
For example, policies could clarify which decisions the family chooses to retain directly and not delegate to the board. Such policies could help family members and business leaders better understand where the distinct accountabilities of family, owners and managers begin and end. The development of thoughtful policies in each of these domains can guide a family business through difficult times and difficult decisions.
* In this case, the FFI uses the following broad definition for family firms: Family Firms are those in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time (Miller, Le-Breton Miller, Lester, Canella, “Are Family Firms Really Superior Performers,” Journal of Corporate Finance, Vol. 13, Issue 5, 2007).