Tag Archives: governance

Is Good Governance a Waste of Time?

Otis Baskin
Otis Baskin

OK, let’s just admit that productive people almost universally hate meetings – “what we do instead of doing something” is the frequent sentiment expressed to me.  So, too often, the required meetings of corporate boards are simply “formalities” or sometimes an attorney’s creative writing exercise.  I have had business owners tell me the primary reason they decided to organize as an LLC was to avoid the need for a board of directors. If board meetings are just a waste of time, why are they the center piece of any discussion of good governance in business?  As with most things meetings are only as productive as the people who manage them.  If the board chair manages the agenda, the discussion, and the action items well board meetings can be extremely productive. 

If the board chair is thinking ahead to the next meeting well in advance the agenda and pre-meeting information can be distributed with enough lead time to allow everyone to come prepared.  If the chair manages the discussion in a way that makes sure all opinions are expressed and understood but does not allow anyone to “hi-jack” the meeting for their own purpose both the quality of decisions and the satisfaction of members will improve.  Rather than a time waster, good governance can be a time saver by testing ideas before they are implemented and avoiding costly mistakes.


Three ingredients to multi-generational firm success

Drew Mendoza
Drew Mendoza

Over the last twenty-plus years of working with and observing multi-generational family businesses, three attributes common to the oldest, largest and best performing ones seem to present themselves repeatedly. 

First – the family shareholders are aligned around matters of vision, purpose and expectations of each other and the enterprise.  And, as often as not, they reach alignment through the use of family meetings or other such important forums for shareholder and family education, development, trust building and communication. 

Second, the output of those family meetings – their vision, purpose, sense of unity,  policies and agreements – these all serve as important contributors to strategy.  The outputs inform management of what is expected of them and the rules they’ll have to play by; what some may call the non-negotiables.

Third, their values implicitly or explicitly include transparency, accountability, stewardship, outside input and a responsibility to others.  These values usually guide them to establish appropriate and active governance – both for the family and the operating company.

At our website, www.efamilybusiness.com, you’ll find dozens of books, webinars and thousands of articles loaded with ideas about family meetings, governance and being an effective family firm shareholder.


Questions to Consider Before you Venture into ‘Family Venture Capital’…

Norbert Schwarz
Norbert Schwarz

Some families have thought about providing venture capital or “seed” money to family members who have an entrepreneurial dream. Families that have considered offering such capital often see it as a way to support family members and build on a legacy of entrepreneurship.

Like many good intentions, the challenge is usually in the details. When the family, or family office, begins to develop a plan for providing venture capital several questions must be answered. Perhaps first and foremost is the question of how to establish a policy that will be consistent and can provide equal opportunity within the family’s means.

Other questions that will need to be addressed include the following.

  • What are the criteria for approval or rejection of a venture request?
  • How should expectations be set for the investments? What are realistic expectations?
  • What about non-profit ventures? How should expectations differ for profit and for community based non-profit ventures?
  • What about accountability? What happens if the expectations are not met?
  • Should the investment be administered within the family or family office? Or should the function be managed outside the family with some family governance?
  • What role will the family investment vehicle play in the governance and/or management of the venture being financed?
  • In the event of a failed investment, what can (should) be done to make sure the unsuccessful entrepreneur remains a welcome contributor to the family?

Certainly determining fair and objective criteria for consideration is key.  Most will require the submission of an acceptable business plan accompanied by realistic financial projections, including cash flow “burn rate” and break-even to profitability projections. Normally, these would be on a worse case, best case, and most probable case basis. The plan should also address the repayment of venture financing and expected return on investment to the venture capital provider. Another consideration for approval might include the extent to which the prospective entrepreneur would be wiling to support his/her own venture from both a financial and time commitment perspective.

The review and approval process is paramount in maintaining fairness in a venture capital environment. Some families have considered engaging outside advisors such as investment or banking sources to assist in establishing approval criteria – though these should not be advisors who are currently active in managing family assets or providing services to the family. An outside independent venture capital board might provide a welcome resource for policy development as well as for the process of managing the family venture investments.

A source of venture capital within the family can be a most rewarding addition to an already rich tradition of participation in the free enterprise system. It can also be a major contributor to the family’s efforts in active philanthropy that may enable numerous family members to realize their dreams of active involvement in making a difference in their communities.  While all these intentions are good, make sure you take the time to think through the tough choices and set up clear processes before supporting the first ‘deal.’


The Roles and Responsibilities of Beneficiaries

Norbert Schwarz
Norbert Schwarz

Trusts are important tools when planning for the continuation of family ownership into future generations. While trusts are often effective in tax and transition planning, family and business issues can emerge when little is done to educate beneficiaries about their roles and responsibilities.

The following are suggestions for minimum education that should be provided to beneficiaries, they need to:

  1. Understand why the trusts were set up and the governance processes by which they are overseen.
  2. Have a basic understanding of businesses owned by the trusts, and the processes by which they are governed.
  3. Know how to manage personal finances responsibly.
  4. Be educated on how they can become productive and knowledgeable stewards of their heritage.  Help them to think of how, even as beneficiaries, they can add value.
  5. Develop the habit of thinking in terms of multiple generations, and appreciating the role of ‘steward’ of wealth.
  6. Get help and support to establish an effective decision making process at the family and beneficiary level.
  7. Understand the basics of business finance.
  8. Develop a real appreciation for the importance of confidentiality.
  9. Support those who have been entrusted with governing the family business and the business of the family.




How Important is Your Vote?

JoAnne Norton

Very! Especially when it comes to elections that involve your family’s business. To be successful, family owners need to have good governance practices in place at least by the third generation. By that time, cousins own the business together, and decisions generally need to be made by a large number of people rather than a single owner or siblings.

Recently I was meeting with a family who were in the process of organizing their first Family Council. We talked about all of the exciting things the Council could do, such as creating the philosophy of family leadership in the business and drafting a family-employment policy.

A hand shot up at the back of the room, and a young woman asked: “But where does the Family Council get all of this power from? What if the Council does something the family does not agree with?” I explained that this power would come from all of the family members who were with us in the room that day. They would ultimately become the Family Assembly, which is usually composed of all of the members of the family. I told her it is generally the charge of the Family Council to draft the charter, but nothing could actually happen unless family members showed their support by voting.

Next, she asked who could vote? Would it be just the owners? Would spouses be included? How old would family members have to be in order to vote? I explained that the answers to these questions vary from family to family, but I assured her again the entire family would have the opportunity to vote on these issues. She looked greatly relieved.

Of all the voting family owners do, voting for family leaders is probably the most vital. Family Assemblies usually vote for Family Council members, and the Council members vote for who will lead them as their Chairman. That’s why when you have the opportunity to make this crucial leadership decision, please be sure to vote!


Why Independent Board of Directors?

Bernie Kliska

Once a crisis hits a family business, there is usually a quick scramble to put the pieces back together.  Perhaps the family CEO is ill and unable to work.  Maybe the company faces a cash-flow problem or unusually high turnover.  Who can the owners turn to for objective help?  In tough times and good times independent board members can be invaluable.

It is not the task of an independent board to run the company.  They are not an operational arm.  They will not decide which products the business should manufacture or sell and they won’t tell you how many shifts to run. 

Instead, the independent board members typically deal with broader issues that affect the company’s success and growth, such as successor selections, strategic planning, liquidity and crisis management.  In addition, an independent board can be extremely helpful in overseeing the executive management.

Note that independent directors serve more effectively if the owning family has done the hard work of articulation their own goals and values.  It would be beneficial if the family would communicate to the independent directors what their function would be before they are asked to join the board.

Independent directors of different backgrounds and views are a precious resource to the business owning family.  Bringing that strength and difference of perspective into the boardroom requires excellent listening, mutual respect and thick skin.

Developing an independent board is a significant step in the life of a family business – while it takes some effort to get established, done well, the value to the business is immeasurable.

We’d love to hear about your experiences in setting up or serving on boards for family owned businesses – please join the discussion…


Rights of Man

David Lansky
David Lansky

I have been reading “Rights of Man” published in 1791 by Thomas Paine, one of the fathers of the American Revolution. This monograph was published as a commentary on events leading up to the French Revolution and the governance of nations.  I find it fascinating to consider the relevance of these writings to our work on governance of family enterprises. While there are many interesting parallels, I focus on a few below, with Paine’s words in italics.

Principally, Rights of Man opposes the idea of hereditary government — the belief that dictatorial government is necessary, because of man’s corrupt, essential nature. Paine wrote:

Every age and generation must be as free to act for itself in all cases as the age and generations which preceded it. The vanity and presumption of governing beyond the grave is the most ridiculous and insolent of all tyrannies….

Need we say more about the challenge that founders face when they consider passing a business or family wealth to the next generation? You can’t govern from the grave.

Every generation is, and must be, competent to all the purposes which its occasions require…..

And yet it should be emphasized that generations who wish to assume governing responsibility must be competent (educated, informed, engaged) to that task.

The fact, therefore, must be that the individuals, themselves, each, in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise, and the only principle on which they have a right to exist….

Legitimate systems of governance evolve from a conscious and intentional decision to freely associate. Some of the most flawed systems of family governance that I have observed are composed of family members who do not believe they have a choice – or do not own the choice they made – to be a part of the system.

The circumstances of the world are continually changing, and the opinions of men change also; and as government is for the living, and not for the dead, it is the living only that has any right in it. That which may be thought right and found convenient in one age may be thought wrong and found inconvenient in another. In such cases, who is to decide, the living or the dead…?

Whatever system of governance is implemented, it should be understood that policies and expectations are dynamic and evolving and should change over time to accommodate a family’s changing circumstances.

It requires but a very small glance of thought to perceive that although laws made in one generation often continue in force through succeeding generations, yet they continue to derive their force from the consent of the living….

It is incumbent upon governed parties to revisit and renew their agreements. Choice in successive generations that is revisited and renewed helps to ensure legitimacy of a system of governance and can help sustain the system over time.


Stock Market Convulsions – Lessons for Families

Chris Eckrich
Chris Eckrich

Last week was a great lesson in the consequences of emotional reactivity to business information.  Monday’s news was gloomy – business conditions had eroded from earlier projections and the debt deal wasn’t enough.  The Dow was in a free fall as investors ran for cover.  The sun came up 24 hours later and investors realized that maybe they overreacted, and much of the losses were won back.  Only to drop again, then roar back as a few key indicators seemed to back away from the story line of financial Armageddon.

Family enterprise shareholders are regularly exposed to information about their businesses, and not all of it is good news.  When hearing bad news, it is natural to catastrophize and begin thinking of all the things that could go wrong, which nurtures further anxious thinking.  Many a family CEO has received phone calls from fearful shareholders questioning management’s abilities at a time when management is usually working very hard to make the business work properly.  Unless both caller and CEO are gifted communicators and can find common ground, it is not unusual to have the call end with the CEO frustrated and the shareholder finding little to ease the anxiety.  There is a better way.

Families do well to work on building strong communication systems between the business and shareholders, and nurture trust through clear and agreed upon governance.  This usually occurs in family ownership forums or family meetings, during which the family creates the rules for how governance will occur, and how information will be disseminated.  Once this framework is in place, trust is built and strengthened over time as each group (Owners, Board, CEO, Family) lives up to its expectations with the others. 

Trust and communication are necessary, but not sufficient to prevent reactivity among ownership groups.  Also needed is a deep sense of long-term commitment towards achieving ownership’s vision.  Securing long-term commitment requires that shareholders be educated about the business, the opportunities it offers to owners, and how it will achieve the owner’s objectives.  For many enterprising families, shareholders are educated regularly (often starting at an early age) about the long-terms benefits of family business ownership.  This education is crucial in helping shareholders appreciate and value the businesses they own, and to deepen their sense of long-term commitment to the business.  Then, when difficult business situations arise, shareholders provide stability to the enterprise rather than chaos.

As for the stock market, one wonders what would have happened if investors all had a 10, 20 or 30 year investment horizon, rather than being driven by the news of the day.  It probably would have been a pretty bland week.


Family Business Practices in Brazil (Part 1)

by Stephanie Brun de Pontet &
John L. Ward

We had the special pleasure of conducting a two-day workshop for HSM for 250 people from more than 100 significant Brazilian family firms. In this and subsequent web posts, we share the results of a survey of the participants. What has been their experience?

In terms of ‘who’ was in our audience answering these questions: 36% are in the founding generation, 37% in the second generation, 16% in the third generation, and 11% in the fourth or later generations.  As the generation of the family will have a bearing on many of these questions, we have broken up the answers by these demographic groups as appropriate.


  • “Letting Go” of control by the senor generation was seen by all generations as the most significant challenge to successful continuity – non-family advisors and directors felt so, even more strongly.
  • Siblings in business together thought that differences in managerial style between them was their next greatest challenge (40%), followed by sibling rivalry (25%).
  • “Co-CEOs” have been part of 21% of all family firms, with 33% finding that a good practice.


  • Just as with our global research, half of families who have initiated a Family Constitution are pleased with results and half are not! Pleasantly surprising, 57% have tried.
  • Also quite similar to our global research, about 1/3 of all family firms have three or more Independent outside directors. 63% of those with outside directors find them extremely valuable.


  • About half feel it is likely that they will consider a private equity investor for their family company.
  • 51% say an IPO is not imaginable.
  • 24% already have experienced a ‘family shareholder’ redemption; yet, unfortunately, 45% have no policy to guide such an almost inevitable event.

What was our most surprising finding? Fully 65% of all participants have official family meetings, and most include some family business education as part of their meetings.

With thanks to HSM for encouraging the survey and for their dedication to family business education.


Relating the Family and the Business in Brazil

by Stephanie Brun de Pontet &
John L. Ward

At a recent seminar we led in Brazil, hosted by HSM, and attended by 250 individuals from family firms based across that country, we found the following results in an anonymous electronic polling of our audience.  As families in business around the world often wonder how to optimally handle these issues in their own family enterprises, we thought it would be of interest to share s few results here:

Do you require outside work experience of family members before they can join the family firm?

  • 33% ─ “NO”
  • 29% ─ 1 to 2 years
  • 28% ─ 3 to 4 years
  • 10% ─ 5+ years

Are family members paid for family governance roles?

  • 29% ─ “Yes”, meaningfully
  • 14% ─ “Yes,” symbolically
  • 47% ─ “NO”

At what age does the next generation begin to receive stock shares?

  • Under 21 years:        12%
  • 21-25 years:              16%
  • 26-35 years:              25%
  • 35+ years:                  22%
  • At parents’ death:     25%

How does the family do philanthropy?

  • 35% don’t
  • 25% mostly through the company
  • 24% mostly individual family members
  • 16% have a Family Foundation

If you hired a consultant to help, for what role?

  • 59% for family governance and constitution
  • 25% for business strategy
  • 10% for psychological help.

We are grateful to HSM Brazil for making this survey research possible.