Building a Strong Family Governance Structure: Essential Steps and Best Practices

First Family Council Meeting, Caledonia Ventures

In this complex world, the business of the family, is more important than ever. A robust governance structure is crucial for maintaining harmony, ensuring development, and facilitating long-term success. Without proper governance, the business of the family can face conflicts due to poor communication, lack of preparation, and other challenges that can impede long-term stability. Let's explore the essential steps and best practices for building a strong family governance structure.

If you are not familiar with the terminology, the business of the family refers to family enterprises, family affairs, legal and estate matters as well as individual and family development. Your family might be concerned about one or all of these topics. However, having a structure to address these subjects makes a difference in family success and happiness.

Why Governance Matters in a Family

Governance in the family refers to the system of rules, practices, and processes by which the business of the family is directed and organized. It includes defining roles and responsibilities, establishing decision-making processes, and setting up mechanisms for development. Here’s why it matters:

Clarifies Roles and Responsibilities: Clear governance structures delineate family members' responsibilities, reducing conflicts and confusion.

Enhances Decision-Making: Structured governance ensures that decisions are made systematically, considering the long-term interests of the business and the family.

Ensures Development: Proper governance frameworks hold individuals accountable for their goals and for improving their family's Balance Sheet overall.

Facilitates Succession Planning: A well-defined governance structure aids in smooth leadership transitions, ensuring family continuity.

Steps to Building a Strong Governance Structure

Define Your Governance Framework

Start by outlining the overall governance framework, which can include the family’s vision, mission, core values, charter, bylaws, and policies that will guide the family's involvement. Prioritize which topic to tackle first.

Tip: We suggest starting with forming core values that are the consensus of all family members. Review them regularly and make changes if necessary. Once these are in place, everything else should fall into place.

Document Family History

Knowing your family history provides a sense of identity and belonging, connecting individuals to their roots and helping them understand their heritage and cultural background. Understanding this can also strengthen family bonds, as shared stories and experiences promote a sense of unity and continuity across generations.

Tip: It doesn't matter how you do it, just ensure that the family stories are preserved for future generations. Don't wait for the perfect time, prioritize documenting them now. Consider publishing a book, utilizing audio recordings, or using an app like Artifct.com to save valuable information and the lessons learned from ancestors and from your generation as senior members.

Establish a Family Council

Form a family council to serve as a platform for discussing family matters related to family affairs. The council should include representatives from different family branches and generations. More details about family meetings, refer to the Mastering Family Meetings.

Example: The family council of the Mars family (Mars Inc.) meets regularly to discuss family values and business strategy, ensuring alignment and cohesion.

Create a Board of Advisors

If you have an enterprise, such as a company or foundation, as part of your family structure, set up a board of advisors with a mix of family members and independent, non-family members to provide diverse perspectives and professional oversight.

Best Practice: Ensure the board includes independent directors who bring external expertise and impartiality.

Develop Clear Policies and Procedures

Draft policies and procedures for key areas such as conflict resolution, succession planning, and financial management. These should be documented in a family constitution or charter.

Tip: Regularly review and update these policies to adapt to changing business and family dynamics.

Implement Regular Communication Channels

Establish regular communication channels to keep family members informed about the enterprise's performance, major decisions, and future plans. This could include newsletters, annual meetings, and digital platforms.

Example: The Ferragamo family uses an online portal to share updates and documents, ensuring transparency and engagement among family members.

Foster a Culture of Development

Promote a culture that values development and accountability. Encourage open communication about individuals' and families' purpose, and yearly and long-term goals.

Best Practice: Conduct regular meetings and performance reviews to maintain accountability.

Plan for Leadership Succession

Develop a comprehensive succession plan that outlines the process for selecting and training future leaders. Include criteria for evaluating potential successors and a timeline for the transition.

Tip: Involve external advisors or consultants to provide objective insights and facilitate the succession process if necessary. As the family or enterprise grows, this becomes more necessary.

Educate and Train Family Members

Provide education and training opportunities for family members to enhance their understanding of governance and their roles within the family. This can include workshops, seminars, and mentoring programs.

Example: The Walton family (Walmart) has a structured program for educating younger generations about governance.

Create an Opportunity for Celebrations

Family celebrations are often overlooked as a key factor in building relationships among family members. Familiarity with siblings, grandparents, and even cousins is key to creating trust among family members. Regular gatherings can achieve a well-defined event with the purpose of bringing the family together. Use the get-togethers purposely to create unity, whether it is a holiday, wedding, or specific family occasion. Refer to the book The Art of Gathering for more information.

Tip: Overdoing event requirements for individual family members can inhibit the development of the rising generation from their independence. Solicit their involvement in the family’s gathering schedule and planning instead of simply requiring them to show up to a required affair.

Encourage Family Traditions

Family traditions are highly important as they create a sense of belonging, strengthen family bonds, and preserve cultural heritage. These rituals and practices provide continuity, fostering a connection between generations and helping to instill values, identity, and a sense of stability in family members.

Example: Every Fourth of July we put an American flag by the gravestones of our ancestors in the family cemetery. We reflect on where we came from and celebrate the lives of those who came before us.

Caledonia Ventures Case Study:

This family started the governance process by creating a family council. Since the structure was a bit rocky at first, they solicited the help of advisors. They stepped back from the details to focus on hashing out their core values of Family, Integrity, Perseverance, and Knowledge. Once these were established, they concentrated on their vision and mission statements. The development took almost three years, but the lessons of respecting each other's opinions, developing a bond, and unifying over values were key to a strong implementation of a governance system.

Overall, the enterprise focuses on individual development. The family regularly meets to discuss family issues on all of the best practice topics. Along with a 250-year strategic plan, they challenge the family members to reach their full potential in all aspects of the Family Balance Sheet (Intellectual, Human, Social, Spiritual, Legacy, and Financial Capital). By succeeding individually, they believe they will flourish as a family.

Conclusion

Building a strong governance structure is essential for family success and longevity. By defining clear roles, establishing effective communication channels, fostering development, and planning for succession, families can navigate challenges and ensure harmonious and sustainable growth for years to come. Implementing these best practices not only strengthens the family but also enhances unity and legacy.