The need for governance in family-owned businesses

Family-owned businesses are an important part of the economy, and they face unique challenges due to the dynamics of family relationships. With family members involved in both ownership and management, decision-making processes can be complex and challenging, so it is crucial that family-owned businesses  develop governance structures before a need for governance arises.

With proper governance, family-owned businesses can thrive and achieve long-term success. However, without proper governance structures in place, family-owned businesses may encounter a range of problems that can impact their success and long-term viability. These problems may include:

• Lack of clarity around roles and responsibilities
• Lack of a clear decision-making process
• Lack of transparency and communication
• Family conflicts impacting the family business
• Succession challenges
• Inability to determine future direction of the business

Lack of clarity around roles and responsibilities

This is one of the most significant issues that can arise. Family members may assume different roles and responsibilities based on their relationships or personal interests, rather than their skills or qualifications. This can lead to confusion, overlap and conflicts that can ultimately affect the business's success.

Proper governance can promote understanding about roles as owners, management, employees and family members as well as expectations for career and leadership development. Each family member should have a defined role in the business, with specific responsibilities that align with their skill sets and interests. This ensures that everyone is clear on their responsibilities and can work together effectively.

It is also important to establish clear boundaries between the family and the business. Family members should not be given preferential treatment or opportunities within the business, and professional relationships should be maintained at all times.

Lack of clear decision-making process

Without a fixed process, family members may make decisions based on personal preferences or emotions, rather than what is best for the business. This can result in decisions that significantly impact the business’s chances for success.