From new leadership to new ownership: Good governance is key to transition-ready family businesses

We have anecdotal evidence from working alongside clients of how robust governance systems impact an organisations’ ability and success when undertaking a transition. But it’s backed up by the data too as seen in the Family Business Survey 2021. This survey was conducted jointly by Grant Thornton and Family Business Australia and Family Business New Zealand.

What the data tells us

According to our findings: 50 per cent of transition-ready businesses have a documented strategic business plan and are more than two times more likely to hold stakeholder meetings. Again, they are more than two times more likely to have a formal process for incorporating family values into formal planning processes, have a formal Board of Directors, as well as a Family Constitution or Charter. Finally, transition-ready businesses are six times more likely to have a formal conflict resolution mechanism in place.

What is (good) governance?

From family-owned organisations, to larger or publicly-listed companies, strong governance – put simply – is typically clearly-defined procedures for how you run your business and how decisions are made within your business.

It underpins and formalises how these decisions are made (and by who) and becomes a key pillar within the organisation. It gives robust guidance for managing relationships between family members, stakeholders and management, as well as maintaining business continuity – not to mention family harmony.

But strong governance must be a comprehensive and collaborative process, with a commitment to continuously revise so you have documents that evolve as the business also grows, expands or diversifies, and through the key transition milestones you experience.

There is no one size fits all when it comes to governance and may include a multitude of pieces. For instance: family charters, councils and forums; even processes and tools to help families achieve better communication, collaboration and decision-making.

Does it need to stay within the family?

While good governance can be achieved within family-run businesses, engaging experienced experts outside the business can add the independence and expertise needed to facilitate and disseminate the best and most sustainable outcome for the organisation.

We regularly work alongside clients to develop and embed governance procedures. It can be different for every family business: from building a Family Charter (that is, guidelines by which the family agree to abide), to helping develop a Board of Directors or an Advisory Board.

A recent success story

We have recently seen multi-layered success for a family business client by extending their company board. Originally made up of family only, the family agreed to appoint trusted external advisors to their board. These independent, third party non-executive advisors brought along needed governance expertise. They were able to help develop and provide alignment of family and business values – which helped when the business undertook a transition to new leadership, and eventually to sell the family business. These clearly defined and streamlined governance procedures gave this family a competitive advantage and, ultimately, made it very appealing to the market.

Working with clients

Our team understands family dynamics and are accredited as specialist advisers with peak bodies, including Family Business Australia and the Family Firm Institute. We assist family businesses with the facilitation and the development of governance structures across the full spectrum of governance. Get in touch.