For a long time, the prevailing opinion was that governance considerations were only for "large corporations." Certainly, the previously unfamiliar term "governance" contributed to this assessment, as many elements of governance are naturally present in mid-sized companies. In its structured approach, governance represents the operating system for mid-sized family businesses.
The Goal of Governance
The goal of governance can be used as the central starting point for necessary considerations and the resulting decisions. Because: Governance is intended to
- anchor the owner strategy in leadership and decision-making,
- organize the decision-making architecture and maintain the ability to act,
- secure the earnings, liquidity, and risk budget, and
- establish the capacity for succession and conflict resolution.
From these objectives, it is clear that governance is aimed at the family business on the one hand (= Corporate Governance) and addresses the owner(s) of the company and thus the entrepreneurial family on the other (= Family Governance).
Governance Parameters
Governance is not an end in itself, but a means to an end. Its scope must fit the situation and the DNA of the company and the family in order to be effective in achieving its goals. It must identify the relevant criteria for the specific situation and make preparations to respond systematically to future developments within the company and the family. The foundation is the so-called owner's intent, which the owner(s) of the company formulate regarding strategy, risk, and ethical-moral frameworks.
The parameters of governance originate from the company and the circle of owners. With regard to corporate governance, these parameters include, for example:
- Size of the company or group
- Corporate and organizational structure
- Risk level of the business model
- Internationality
- Financing structure
- External management
- Advisory board or supervisory board
Parameters regarding family governance include, for example:
- Number of shareholders
- Number of shareholder families
- Heterogeneity
- Generational stages
- Succession horizon
- Potential for conflict
- Importance of the company to the shareholders
Together, the aforementioned parameters form a certain degree of complexity, which can also include the interactions between the constellation within the company and the owner family.
The degree of complexity as the framework for the governance structure
An initial assessment is formed based on the complexity levels at both the company level and the owner family level.
This initial assessment provides orientation regarding one's own situation in the relationship between company and family and vice versa. It challenges you to address the question of what you personally consider to be complex. The number of relevant parameters is the basis for the question regarding the scope of a governance system – from a minimal setting focusing on a few relevant core topics to an integrated code and professional committee structure. Or, to look at it another way: A company in the first generation of management with a tax-driven transfer of shares to the founder's child faces different core issues than a company in the fourth generation with three shareholder families and non-family management.
However, the initial assessment also sets the first priorities and indicates which topic areas should or even must be addressed as a priority. This can reveal regulatory gaps in existing arrangements, or changes in the company and/or family may make it necessary to revise previous decisions.
CONCLUSION:
Governance bundles the topics that enable the management and leadership of family businesses, as well as decision-making within the owner family. Systematically addressing these topics ensures the necessary ability to act and creates readiness for succession.
NEVERTHELESS: This process of ensuring the ability to act and readiness for succession requires intensive and trusting opinion-forming at the level of the owners and potential successors, whether in an operational role or as shareholders. Governance, when set up wisely, provides orientation for all involved and creates a binding set of rules. The owners shape the content.
THE MAK'ED TEAM develops appropriate approaches to regulations for active management, leadership, and succession with medium-sized companies and their shareholders. We know what is at stake for family businesses and owner families.
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