Many who’ve inherited or are developing a family business feel the desire to pass the torch to their heirs – a task that is far more challenging than one would initially think.  Research indicates that only 13% of family-owned businesses make it to the third generation.  How can a family guard against this generational attrition?  The answer: Governance in Family Business.

Governance begins by creating a board of directors, composed of both family members and non-family executives, who oversee the decision making of the family business.  Like any hiring decision in family business, board members must be appointed based on experience, competence and merit.  Doing so will insure the right person for the job and avoid the pitfalls of hiring someone simply for their standing in the family.

To guide this governing board, The Peer Alliance suggests defining the governance in writing.  This document works to clarify the boundaries between family and business, to manage relations between family and business and to clearly outline the views for current and future ownership of the company.  Many refer to this type of governing document as a “family business constitution” – a fair term as the values contained in this document insure a democratic framework for continual success.

Finally, it’s important to consider what role the governing Board of Directors plays in the family enterprise.  The Board will principally consider, protect and represent the interests of stakeholders, both family members and otherwise.  By creating a Board of Directors based on merit, a family business can bring a balance between traditional business tactics and family business tactics to achieve maximum success.  Having a Board of Directors can also create a constant source of knowledge that bridges the gap between generations – thereby insuring a smoother transition of leadership from one generation to the next.

The benefits of governance in family business are numerous; but above all, the focus is on creating a lasting structure and culture of openness, honesty and traditional business practice for the continual success of the family enterprise.

For further reading: http://www.thisisnottingham.co.uk/pass-thriving-family-business/story-15899952-detail/story.html