Family Business: Management vs. Governance
In family businesses, there’s often confusion around the management of the business, and the separate, but equally important area of its governance.
Management includes all the day-to-day actions and decisions that keep the business running.
It’s what you can see happening with all the activities done by the majority of the employees.
Management is the short-term execution of the company doing what the company has decided its business is.The key word here is “decided”.
I purposely said that “the company decided”, but in reality it isn’t decided by “the company”.
It’s the people who “govern” the company that decide
and then the managers of the company implement those decisions
It’s much clearer in public companies, where
shareholders elect the board of directors, who decide who the management will be.
There are lots checks and balances and formal structures and procedures to guide decisions.
In a family business, well, usually, not so much.
The word “formal” reminds me of the expression “Formality is your Friend”
Family businesses often resist formality because they don’t want it to slow them down.
and have a preference for flying by the seat of their pants.
Sometimes the managers of a company act like they’re also in charge of governance, because they can.
But a family business is a complex system, involving not only the business, but also the family, and the ownership.
These interdependent systems are where some formality and definition of roles and responsibilities comes in.
In fact, governance is all about figuring out, deciding, and writing down who decides which questions
Governance can sound TOO formal, and scare people off.
So it’s important that any governance you choose to put in place be done incrementally.
Ambiguous situations abound in a family business, and when things aren’t clear, people step on each other’s toes a lot, which can create conflict.
It’s important to clarify which groups of people will be responsible for which decisions.
That can be really hard to do, but it really needs to be “hashed out” as a group.
When families try to work these things out by themselves, they CAN end up making things worse.
It’s important to bring in an independent person, with no stake in the systems, to make these discussions more civil, and much more productive.
That’s all for today, I hope you got something useful, see you next time.