Cross-border family governance

Some of the world’s largest and most well-known businesses were once small family-owned businesses. Research has shown that a certain degree of family ownership or control benefits family businesses and shareholders. However, managing a family business once it has reached the world stage may be much more complex than anticipated.

Family-owned businesses have an extra layer of complexity due to the emotional investment by the individuals involved. Consequently, a holistic approach to family governance is vital to building a sustainable family business that will last for generations.

In family-owned businesses, the inter-relationship between the family, owners of the business as well as management overlaps very easily. Therefore, the governance of the inner workings of such structures is complicated. The following model sets out the concept of a family-owned business:

The following factors have shown to be key drivers in family businesses:

1. Family Governance

Family governance is much more than leadership but ensuring that the family’s core values are encapsulated to be transferred and communicated to future generations. A Family constitution can be an effective tool in which the following is contained:

• Family history
• Core values of the family
• Formation of a family council
• Roles and responsibilities
• Rules governing the use of family assets
• Family philanthropic projects

A family constitution can ensure that the founders of the family-owned business do not rule from the grave, as the company’s vision is captured and implemented as the business grows. The family constitution should be aware of the jurisdictions in which the business or family members operate.

2. Generational shift

Passing knowledge and skills to the next generation in the family-owned business is an integral part of a sustainable family-owned business. However, families should take cognisance of the fact that different generations will have different views on policies.

We live in a global digitalised era and how people choose to live their lives are much more agile than ever before. People decide not to get married to work from different continents, which may create opportunities and obstacles for the family-owned business. Therefore, policies should be flexible and adapted as the family grows.

3. Succession Planning

Succession planning may be the most challenging obstacle for family-owned businesses, as statistics show that only about 30 per cent of family businesses survive into a second generation.

Succession planning should aim at transitioning the management (and perhaps ownership) of the family-owned business to the next generation in a responsible manner to ensure that the company remains viable for many generations. This process may be daunting for founders and senior family members who have led the business daily.

Succession planning may be a lengthy process requiring inter-generational teamwork and getting the family aligned, having difficult conversations and creating suitable structures. Succession planning should not be left to the last minute.

4. Family Office

Some family-owned businesses are choosing to set up a family office to protect and manage their family wealth in a structured manner. The family office is an administrative centre that provides advice on personal investment planning, taxes, insurance, estate planning, etc., to individual family members. The family office operates separately from the family-owned business, which professional advisors drive to benefit of the family. The family office would play a vital role in ensuring that the family-owned business complies with the legislative requirements of each jurisdiction in which it operates.

With proper guidance and advice, family-owned businesses can overcome intergenerational challenges to become successful businesses for decades to come.