Is family governance much ado about nothing?
Dr. Mark W Auger
May 25, 2021
Governance conjures up images of government and country, or even board of directors and publicly-listed corporations. For many of us, automatically linking a governing body to family is not clear cut. However, for significant and long-lived enterprising families faced with evolving organizational complexity, family governance becomes a necessity for their longevity and prosperity. Family governance without strategic family leadership foretells eventual impairment of family wealth and relationships.
Governance are the acts or processes of governing or overseeing the control and direction of something1. Furthermore, to govern is to serve as a precedent or deciding principle for customs that govern human decisions2. Good governance is associated with clarity of organizational purpose, organizational adaptiveness and longevity, and sound stakeholder management. These explanations and benefits of governance also apply to the realm of enterprising family governance.
Enterprising family governance encompasses the decision making principles and activities around matters of control, direction setting, leadership capacity, and external stakeholder connections. There are three levels of enterprising family governance: 1) family governance which covers the group of family owners and non-owners who compose the family system and is supported by its Chief Learning & Development Office; 2) ownership governance, which is constituted for the family owners of the enterprising family’s financial capital and various business interests. The ownership governance is generally represented by the Owners’ Council; and 3) corporate governance, which aligns the boards of directors with the executive teams of the enterprising family`s operating entities such as the family business, the family office, family owned investment companies, and private foundations. Hence, the purpose of good enterprising family governance consists of situating the right stakeholder conversations in the right arenas.
All three types of enterprising family governance are distinct and yet symbiotic as each one informs the other on what is expected and needed of family members in each part of the ecosystem. However, unlike corporate and ownership governance, family governance exists, not because of some legal statute or shareholders’ agreement, but rather as a result of a family covenant. A shared belief that nurtured family unity brings group strength and resilience, and respect of one’s individuality throughout time.
Family governance, as a multi-generationally inclusive institution, helps to orchestrate many family member voices into a functional whole. The family council, family charter or protocol, or constitution, and family meetings are the most common family governance institutions. The latter being the least formal of these institutions. As a whole, family governance encapsulates the enterprising family’s communication and tension points management, knowledge management, family leadership learning and development, and visioning initiatives.
Let us not lose sight that family governance emerges from the enterprising family’s strategic leadership capacity. In fact, leadership is a renewable individual and group resource. When viewed as a family resource, the quality of leadership can grow or deteriorate depending on the prevailing mindset of the enterprising family’s leading generation. You can locate the quality of the family’s leadership along a moral continuum. On one end of the continuum, family leadership resides in an individual oriented toward self. At the other end of the continuum, family leadership is comprised of a person or a group of individuals who share leadership as it is directed toward others and the collective good.
Consider the founder or generational leader who voices his or her vision with a command and control mindset. The idea of family governance may never take shape as there is only one voice that matters, his or hers. The command and control leadership model implies there is one prevailing way of doing things. The leader thinks and acts to project, to retain, or regain control of his or her world perspective. The leadership succession process is about identifying and prepping the chosen ones to protect the status quo. That is the successors are set up to ensure compliance, not innovation or disruption. Novelty would unwittingly destabilize the current leader’s power and status whereby inviting further delay in any leadership transitions. With such tunnel vision, strategic myopia sets in and the pool of family leadership eventually dries up. Family engagement wanes since none of the family members can be their authentic self for fear of retribution or rejection because of non-conformity.
Compare the previous example to an enterprising family guided by a leadership model rooted in trust and empowerment and you will see how this transforms into strategic leadership. Strategic family leadership is not limited by the bounded rationality of one individual. To the contrary, it understood to be shaped by the ideas of stewardship, strategic thinking, and shared leadership. Strategic leadership is about environmental sensitivity and leveraging the power of many brains as one to plan, execute, and learn. Strategic leadership represents the leading family generation and next gen family members aligned to support and fund an early start to the continuous learning family journey.
The strategic family leadership mindset sets and adjusts the enterprising family governance institutions in search of relevance and renewal to circumvent the status quo trap. In essence, family leadership becomes a purposeful and empathic component of the family capital. Achieving a master like level of strategic family leadership takes time so do not wait for tomorrow to get what is needed today. Socializing the enterprising family’s «why» is an ever winding road. Prepare and plan accordingly.