Family Business Governance - Overview

Governance within family owned businesses refers to the oversight and decision making process that has been implemented in the business. Proper governance is essential to ensure that decision-making is done efficiently and effectively.

Governance is uniquely difficult within a family business. Due to the nature of the business, family members may take on roles within management, ownership, or both. Additionally, family businesses often employ non-family members in key management roles. The result is there are many competing points of view as to how the business should be managed. As such, the governance structure must account for these various points of view and long term goals.

The 3-circle model of family business governance is a helpful way to illustrate the different positions that key people in the family business might occupy at various points in time. Each section of the model represents a different role that one may hold in the family business, and there is often overlap involved. People may move from one point in this model to another over time and their goals and objectives may change. For example when a family member starts to work in the business they overlap the family and business circles and then when they become an owner they will overlap all three cirlces and as such their perspective and responsibilities will change. There may also be instances where a family business has non family members in an ownership position. 
  • 1. There is the founder who is member of the family, an owner and works in the business, in this case he is a link between family shareholders and the Board of Directors.
  • 2: Some family members may be owners but do not work in the business.
  • 3: There may be management level employees or private investors who are owners but not members of the family.
  • 4: Some family members may be neither in an ownership position or work within the business, yet they may exert some influence on those family members who are woners or work within the business and as such have an effect on the company.

Family business governance involves the contribution of three main systems:

The most successful family businesses have a clear vision for these three groups of stakeholders. You will read about how businesses typically organize themselves within these three areas.