These structures and policies can be designed to meet the unique needs of the family business but should be implemented and managed in such a way that they reduce risk andįamilies and family offices that separate ownership and management through the implementation of effective governance measures can ensure not only the long-term success of their businesses but also family harmony. Policies for financial rewards and incentives offered should also be put in place to ensure alignment with shareholder interests, and that they are based on tangible factors such as share prices or organizational profitability rather than a position within the family. This includes structures and processes that ensure that directors are accountable to shareholders and the latter are protected as far as possible through the appointment of non-family executive directors and remuneration management committees. To minimize and deal with potential conflicts within the organization, implementing considered corporate governance structures and procedures is essential. Implement corporate governance structures and policies Regardless of how boards are appointed, potential directors that match the organization’s culture and skill matrix must be carefully and strategically identified, interviewed and recruited. Others may be independent, electing members and then seeking approval by the owners or a shareholder assembly. Some may have rules in place that external, non-family members must occupy a designated number of seats. How a board is appointed may differ from one family business to the next. Appointing a board comprised of both seasoned family business professionals and external ones is an effective way of separating ownership from management. While the family is an asset to the business in terms of the experience and insights its members can provide to the management team, it is essential to complement this perspective with that of qualified professionals. Establish strong boardsĪccording to McKinsey, durable family businesses tend to have strong governance through which the company is directed and controlled. Once an agreement regarding these rules is reached, they must be followed by everyone involved in the organization. The second, a Shareholders agreement or possibly a Board Charter, dictates how the family will behave and relate within the company. The first set of rules, a family constitution, dictates how the family will behave and relate to the business. The drawing up of progressive owner agreements that govern owner activity within the business and clearly outline the permitted and restricted activities helps to ensure the effective separation of ownership and management.Īccording to Dominic Pelligana of KPMG Private Enterprise, families generally require two sets of governance in this regard. Draw up management and ownership agreements Practical steps that may be taken to implement such structures include: 1. How to implement an effective separation strategyįamily business governance structures, when expertly designed, can successfully ensure the separation of the “business of the family” from the “business of the business.” This division can help on both fronts - driving company profits while maintaining family harmony. Still, in many instances, the advantages outweigh the disadvantages, most of which can be managed through implementing sound governance. These may include slower decision-making and reduced flexibility and agility when responding to change, as well as the principal-agent problem, which occurs when conflicts of interest or incentive arise between those who operate and manage the business. Separation is, however, not without its disadvantages. While every shareholder within the business will naturally have investment preferences, it becomes management’s job to identify the optimal ones and identify ways in which business assets can be effectively managed to secure the highest profits for all shareholders. Separation also facilitates the maximization of capital.
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