Family Business and Governance

The difference between a family business and any other business is the family. This means that the family plays a crucial role in the governance of its business.

When the family business is still at its initial founder(s) stage, very few family governance issues may be apparent as most decisions are taken by the founder(s) and the family voice is still unified.

Overtime, as the family grows and goes through the next stages of its lifecycle, newer generations and more members join the family business. Relationship changes from father/mother, through siblings then to cousins. With cousins, you start having uncles and aunts, nephews and nieces, 2nd cousins etc., and it is possible to have uncle/aunt with a nephew/niece in an office or even cousins that may not have good relationships based on sibling rivalry carried on to the next generation.

In some African settings, it is possible to see the child of the “other woman” in the business or in-laws that may be considered as “gold diggers” or those who married-in to a family but never considered as part of the big family. The implication of such relationships is that you have different age brackets, different beliefs, different ideas, strategy and opinions on how best to run and manage the business. With emotions running high and certain cultural practices (for e.g., a 25 year old “boy” cannot challenge his 58 year old “uncle” in the family business), the business begins to crumble slowly.

You do not have to wait till this stage before establishing the corporate governance for your family-owned or family-managed business. A clear family governance structure will bring discipline among family members, prevent potential conflicts, and ensure the continuity of the business.

This is the right time to consider creating a clear family governance structure.

Just for the records, A firm, company or business, of any size, is a family business, if:

• The majority of decision-making rights (voting rights) is within a family (including their spouses, parents, child(ren) or children’s heirs.
• The majority of the voting rights are direct or indirect (i.e. ability to influence or control business decisions)
• At least one representative of the family or kin is formally involved in the business

This definition includes family firms which have not yet gone through the first generational transfer. It also covers sole proprietors and the self-employed (providing there is a legal entity which can be transferred).

Basically, a family business refers to a company where the voting majority is in the hands of the controlling family; including the founder(s) who intend to pass the business on to their descendants. The terms “family business”, “family firm”, “family company”, “family-owned business”, “family-owned company”, and “family-controlled company” refers to the same thing.

Do you consider your business as a Family Business? If yes, start thinking of family governance. You can join the conversation at #Familybusinessinafrica or visit www.facebook.com/familybusinessinafrica

@Familybusinessinafrica

At Business Catalysts, we help family businesses that think beyond the founder’s stage. Let us partner with you.

You may reach out to us by sending an email to info@businesscatalystslimited.com.