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Family Business: Governance

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Governance of Family Businesses must include the concerns of the numerous and diverse third generation. Establishing a set of councils and boards is essential in addressing critical transition issues. With a Governance Model, Family Businesses can address acute short-term challenges and prepare the business for subsequent generations.

Kickstarting the change process is sometimes the most difficult part of the sibling-to-cousin transition. Ideally, aunts and uncles call the cousins together and say, “What has worked so well for us and makes us proud of what we have achieved will not work for you. You must go out and find your own model.” When siblings are wise enough to give such a mandate, the cousin generation has a greater chance of enlisting support from the earlier generation and being successful. However, many sibling groups avoid or delay dealing with the issue, leaving it up to the cousins to organize themselves. In most cases, highly educated and qualified cousins leave the business once they find the barriers to establishing Governance Structures so high.

This Presentation provides a good understanding of the 7 Core Elements of the Governance Model. The 7 core elements are the Family Business’ guideposts to structuring an effective Governance Model.

1. Shareholders' Assembly
2. Family Assembly
3. Shareholders' Council
4. Holding Board
5. Family Council
6. Investment Office
7. Foundation

Given the way that Family Businesses tend to become more complex over time, it is often up to the third-generation owners to redefine the role of the family and set the direction of the business. Setting up an effective Governance Model puts the Family Business on a new trajectory for success.

This deck also includes slide templates for you to use in your own business presentations.

Published in: Business
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Family Business: Governance

  1. 1. This is an exclusive document to the FlevyPro community - http://flevy.com/pro Framework Primer Family Business: Governance Presentation created by Share- holders' Assembly Family Assembly Share- holders‘ Council Holding Board Foundation Investment Office Family Council 1 2 3 4 5 6 7
  2. 2. 2This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Governance Model Core Elements of Governance Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  3. 3. 3This document is an exclusive document available to FlevyPro members - http://flevy.com/pro A good Governance framework provides a map to the future of Family Businesses Presentation Overview Building a Governance Model is an emotional minefield but healthy Family Businesses can deal with that reality and build long-term value in the process. Governance of Family Businesses must include the concerns of the numerous and diverse third generation. Establishing a set of councils and boards is essential in addressing critical transition issues. With a Governance Model, Family Businesses can address acute short-term challenges and prepare the business for subsequent generations. Kickstarting the change process is sometimes the most difficult part of the sibling-to-cousin transition. Ideally, aunts and uncles call the cousins together and say, “What has worked so well for us and makes us proud of what we have achieved will not work for you. You must go out and find your own model.” When siblings are wise enough to give such a mandate, the cousin generation has a greater chance of enlisting support from the earlier generation and being successful. However, many sibling groups avoid or delay dealing with the issue, leaving it up to the cousins to organize themselves. In most cases, highly educated and qualified cousins leave the business once they find the barriers to establishing Governance Structures so high. This Presentation provides a good understanding of the 7 Core Elements of the Governance Model. The 7 core elements are the Family Business’ guideposts to structuring an effective Governance Model. Given the way that Family Businesses tend to become more complex over time, it is often up to the third-generation owners to redefine the role of the family and set the direction of the business. Setting up an effective Governance Model puts the Family Business on a new trajectory for success. This deck also includes slide templates for you to use in your own business presentations. 1 Shareholders’ Assembly 2 Family Assembly 3 Shareholders’ Council 4 Holding Board 5 Family Council 6 Investment Office 7 Foundation The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  4. 4. 4This document is an exclusive document available to FlevyPro members - http://flevy.com/pro A Family Business is an engine for Change and Innovation, requiring a longer horizon of execution Family Business – How They Differ A Family Business is a classic example of “patient capital” and an invaluable counterbalance to the short-termism of many non-family businesses. Family businesses are unshackled from the quarter-to-quarter pressures of non-family firms. Family firms can invest for the long term. They allow good ideas the time needed to prove themselves. Source: The Missing Middle, PwC, 2016 Stronger cultures and values Measure success differently – more than just profit and growth Decision making is faster/more streamlined More entrepreneurial Take a longer term approach to decision making Need to work harder to recruit/retain top talent Take more risks Find it harder to access capital 32% 40% 48% 55% 61% 71% 72% 74%74% 72% 71% 61% 55% 48% 40% 32% The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  5. 5. 5This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Governance Model Core Elements of Governance Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  6. 6. 6This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Share- holders' Assembly A comprehensive Governance Structure can help resolve the tensions that arise in the multigenerational Family Business Governance Model – 7 Core Elements The journey is never easy but having a sense of direction certainly helps. Second-generation companies whose transition is on the horizon must give due consideration to a sound Governance Model. Putting the fundamentals in place makes the transition from generation to generation a systematic challenge. Good Governance, in effect, provides a map to the future. There are 7 core elements that comprise the Governance Model for a Family Business. Source: Building a House That Lasts, McKinsey, 2014 Family Assembly Share- holders‘ Council Holding Board Foundation Investment Office Family Council 1 2 3 4 5 6 7 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  7. 7. 7This document is an exclusive document available to FlevyPro members - http://flevy.com/pro A pragmatic Governance Model must include the concerns of the numerous and diverse third generation Governance Model – Structure When family firms reach a certain size and complexity – of both family and business – the adoption of a Governance Structure becomes crucial. Establishing a set of councils and boards to address critical transition issues is essential. This allows Family Businesses to address acute short-term challenges and prepare the business for subsequent generations. Source: Building a House That Lasts, McKinsey, 2014 Family assembly Shareholder’s assembly Shareholder’s council Family council Holding board Corporate CEO/center Business- unit board Business- unit board Business- unit CEO Investment office Family foundation Education Policies Events and communication Family services Real estate Private equity- type investments Liquid financial investments Business- unit CEO The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  8. 8. 8This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Kickstarting the change process is the most difficult part of the sibling-to- cousins transition Governance Model – Critical Process Steps While a Governance process takes time, a more deliberate pace makes it possible to gain consensus and educate interested individuals along the way. Cases exist where highly educated and qualified cousins find the barriers to establishing Governance structures so high that they leave the business. There are 2 essential steps Family Businesses can take on to keep the Governance up and running. Undertaking the Governance Process require putting in place essential elements to make Family Business move forward. Dividing work into separate projects. Assigning each capable member to each task or project. Establishment of a mandate, a deadline, and a well- defined way to communicate with the broader family. Creation of a steering committee to monitor overall effort. Conducting periodic evaluation of work in progress. 1 2 3 4 5 Build the Governance structure. 2 Develop a clear idea both of the status quo and of the desired destination. 1 Identify key gaps in the existing structure. Set goals. Decide and prioritize what to do first. Develop a Governance blueprint with the second generation. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  9. 9. 9This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Governance Model Core Elements of Governance Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  10. 10. 10This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Large family groups are governed by both a Shareholders’ Assembly and a Family Assembly Shareholders’ and Family Assemblies – Overview Shareholders’ and Family Assembly ensure cohesiveness within the organization diversified it may be. CORE ELEMENT Shareholders’ Assembly FUNCTIONS Deal with classical legal functions. CORE ELEMENT Family Assembly FUNCTIONS Foster family unity amongst spouses and the next generation. Instill family values in the next generation and raise responsible shareholders. Align all generations within the family and makes them an integral part of the process. FREQUENCY OF MEETING Once a year at a weekend event with both a social and a professional agenda CORE DECISION AREAS Overall direction or vision of the company Ownership structure Large investments Sales of business Dividend policy The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  11. 11. 11This document is an exclusive document available to FlevyPro members - http://flevy.com/pro A Shareholders’ Council is the most important link to the company Shareholders’ Council – Overview The Shareholders’ Council, being the guardian of the company and the family shareholder group, sits at the center of the entire Governance system. CORE ELEMENT Shareholders’ Council FREQUENCY OF MEETING Twice a year meeting is sufficient once the council is up and running. CORE DECISION AREAS Dividends Exit and liquidity policies Stay private or whether and how much equity to float Signs off all major investments and divestitures Approves appointment of CEO and members of the board FUNCTIONS Regulate the relationships among family shareholders and between shareholders and the business. Represents the larger group of shareholders and makes fundamental decisions on its behalf. Serves as the intermediary between the family and shareholders’ assemblies and the board. Promotes unity and takes on the hard work of exposing and overcoming divisiveness. Serves as a representative body of shareholders, relieving the pressure to have too many family members on the Holding Board. Concentrates on long-term matters of importance to shareholders, including culture, values, risk orientation, and overall strategy. Informs the Holding Board of its decision. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  12. 12. 12This document is an exclusive document available to FlevyPro members - http://flevy.com/pro The Holding Board is the link between management and the Shareholders’ Council Holding Board – Overview Board composition should reflect the diversity of the group’s holdings, whether related to function, industry, or geography. CORE ELEMENT Holding Board FREQUENCY OF MEETING 4 to 8 times a year CORE DECISION AREAS Mergers and Acquisitions Divestitures FUNCTIONS Responsible for the overall performance of the group and its CEO. Have an overview of the entire portfolio and the last word on major issues. Takes charge of allocating capital. Influences how decisions are made and represented. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  13. 13. 13This document is an exclusive document available to FlevyPro members - http://flevy.com/pro It is the Family Council’s mission to transfer values and traditions across generations Family Council – Overview The family council must not exceed 10 members to preserve effective decision making. CORE ELEMENT Family Council FREQUENCY OF MEETING In the beginning: every other month Once it has stabilized: 1 to 4 times per year depending on size of family and activities CORE DECISION AREAS Conduct of regular seminars to educate young members. Organization of task force to formulate policy to facilitate entry of new family members. Conduct of regular family activities to promote bonding. FUNCTIONS Serves as an important communications bridge between the business and individual family members. Devises policies regarding family members’ behavior vis-à- vis the business, such as employment, use of the family name, and conflict of interest. Encourages cohesion The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  14. 14. 14This document is an exclusive document available to FlevyPro members - http://flevy.com/pro The Investment Office manages the family’s assets other than the core business Investment Office – Overview An Investment Office can either be in-house with a committee that oversees asset managers or outsourced to an independent entity. CORE ELEMENT Investment Office FREQUENCY OF MEETING As necessary CORE DECISION AREAS Estate planning Tax advice Financial reporting Concierge services FUNCTIONS Helps reduce tension. Provides a sense of security to those distant from the business that their interests are being considered. Allows families to separate value creation and wealth preservation. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  15. 15. 15This document is an exclusive document available to FlevyPro members - http://flevy.com/pro The Foundation is responsible for the family’s social and charitable investments Foundation – Overview Foundations are essential in keeping families committed to the business. CORE ELEMENT Foundation FREQUENCY OF MEETING Once a month or depending on projects being undertaken CORE DECISION AREAS Social and charitable investments FUNCTIONS Nurture consensus from generation to generation on the direction of their philanthropic activities Create a discretionary spending budget to allow family members to finance projects that interest them. Provide opportunities to serve on the board or staff of the foundation Provide opportunities for family members to participate directly in philanthropic projects through onsite visits and volunteering scheme. This is a powerful way to engage the next generation early on. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  16. 16. 16This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Governance Model Core Elements of Governance Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  17. 17. 17This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Insert headline Family Business Governance Model (7 Core Elements) – TEMPLATE Insert bumper. Source: Building a House That Lasts, McKinsey, 2014 Share- holders' Assembly Family Assembly Share- holders‘ Council Holding Board Foundation Investment Office Family Council 1 2 3 4 5 6 7 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  18. 18. 18This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Insert headline Family Business Governance Model (7 Core Elements) – TEMPLATE ALTERNATE Insert bumper. Shareholders' Assembly 1 4 7 52 63 Family Assembly Shareholders' Council Family Council Investment Office Holding Board Foundation Source: Building a House That Lasts, McKinsey, 2014 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  19. 19. 19This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Family Business Governance Model (7 Core Elements) – TEMPLATE ALTERNATE Insert bumper. • Insert filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text. Source: Building a House That Lasts, McKinsey, 2014 Share-holders' Assembly1 Family Assembly 2 Share-holders‘ Council3 Holding Board 4 Family Council5 Investment Office 6 Foundation7 Insert headline The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  20. 20. 20This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Download 100s of similar frameworks from the FlevyPro Library: https://flevy.com/pro/library/frameworks The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  21. 21. 21This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Need more frameworks? Download our Complete Business Frameworks Reference Guide, a 350+ slide compilation of 50+ frameworks, on Flevy The Complete Business Frameworks Reference Guide is a best selling document on Flevy. It is 350+ slides--covering 50+ common management consulting frameworks and methodologies. A summary is provided for each business framework. The frameworks in this deck span across Corporate Strategy, Sales, Marketing, Operations, Organization, Change Management, and Finance. This reference guide is great for those who need a refresher on common frameworks, as well as be introduced and learn new useful frameworks. You can find this document here: http://flevy.com/browse/business-document/complete- consulting-frameworks-toolkit-644 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  22. 22. 22This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Flevy (www.flevy.com) is the marketplace for premium documents. These documents can range from Business Frameworks to Financial Models to PowerPoint Templates. Flevy was founded under the principle that companies waste a lot of time and money recreating the same foundational business documents. Our vision is for Flevy to become a comprehensive knowledge base of business documents. All organizations, from startups to large enterprises, can use Flevy— whether it's to jumpstart projects, to find reference or comparison materials, or just to learn. Contact Us Please contact us with any questions you may have about our company. • General Inquiries support@flevy.com • Media/PR press@flevy.com • Billing billing@flevy.com The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/family-business-governance-3786
  23. 23. 1 Flevy (www.flevy.com) is the marketplace for premium documents. These documents can range from Business Frameworks to Financial Models to PowerPoint Templates. Flevy was founded under the principle that companies waste a lot of time and money recreating the same foundational business documents. Our vision is for Flevy to become a comprehensive knowledge base of business documents. All organizations, from startups to large enterprises, can use Flevy— whether it's to jumpstart projects, to find reference or comparison materials, or just to learn. Contact Us Please contact us with any questions you may have about our company. • General Inquiries support@flevy.com • Media/PR press@flevy.com • Billing billing@flevy.com

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