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Governance in Family Businesses

sonsuzMain strengths of family business are quick decision making, eagerness and ability of grow fast. Shared values, vision, and trust among family members help speed up the decision making processes. However, as the number of family members increase and their visions diverge these advantages have a tendency to turn into disadvantages. In particular, when the management and ownership rights and responsibilities are not properly identified and separated, when emotions get in the way of managerial decision making, and when exit mechanisms are not clearly identified problems tend to grow in severity.

Establishing a family constitution and separating decision formal making processes for the business from the family matters help resolve potential conflicts.

ARGE addresses these issues by:

  • Identifying partnership structure and its possible evolution
  • Coaching through establishment of institutional development
    • Identifying family relations and expectations
    • Developing a family constitution
    • Creating a process for addressing family matters
    • Identifying rights and responsibilities for management and sharholder roles
    • Improving effectivenss of board of directors
    • Developing inheritence ad succession plans
  • Leadership

“Happy families are all alike, but each unhappy family has reasons of its own.” Leo Tolstoy

Of all businesses in the world, 80% are family businesses, just like in our country. And it is not just the small businesses, but even 40% of the top 500 businesses are family firms. Yet, 70% of all family businesses cannot be passed on to the next generation and among those that can 50% do not make it to the third generation. A typical family business has a life of 24 years.

The greatest advantage of family businesses is their ability to grow and make decisions rapidly: a shared past and value norms, mutual trust and efficient communication enable them to move fast on their feet when it comes to taking decisions and implementing them.

As generations pass and families expand, business and family roles get mixed up, business matters intrude in family relations, the vagueness of profit distribution principles, mixing up business logic and emotions all add up to bring the end of the family business. Those families that can pass the business from one generation to another usually have the following common characteristics: They have a strict separation of business, partnership, and family matters and they have separate mechanisms to resolve problems in each sphere.

It helps to form a family council that would allow the family to treat business matters with the seriousness and professional discipline they require. To prepare a family constitution that clearly defines the vision, the mission, and the values of the family and to plan for intrafamily communication, individual development and the transfer of power from one generation to another also help matters significantly. To work with an independent and trusted consultant make the acceptance of these plans more pallatable for all members.

The success of family businesses do not rely solely on preparing these principles and drafting up plans. Family businesses, too, must do their job well like all other competitive enterprises. To that end they must be able to manage all human resources as well as the family resources and apply modern management techniques. The potential for success thus increases, if those with actual or potential leadership qualities are trained and given a chance to accumulate valuable experience as early as possible and with as much care as possible.

A better management of family businesses in our countries and their adoption of future planning techniques will also contribute to our social welfare. Therefore those who are in charge of family businesses should always be cognizant of the fact that their responsibility does not end with managing the present but requires that they take planning the future seriously.