
Great Family Businesses Need Good Governance
By anticipating and addressing key issues, family owners can reduce risk, manage conflict, and promote prosperity.
Globally, more than 30% of large companies are family owned and have their own unique challenges and opportunities for growth. BCG has the industry knowledge and experience to help family businesses remain a vibrant force in today’s economy.
Family-owned companies share many of the same strategic and operational concerns as their nonfamily-owned competitors. But they also face unique challenges. How should the governance of family business be structured? What role should the family play in the future of the business? How should the company manage family business transitions—for example, succession planning and generational shifts? How does it attract the best nonfamily talent? How should the value created by the business be shared? How can growth be funded without diluting family control?
In comparison with nonfamily businesses, family businesses exhibit different behaviors and performance. There are also clear distinctions between family businesses from developed and developing markets. Because of their tendency to take a longer-term and less risk-seeking perspective, family businesses from developed markets show greater resilience. Those hailing from developing markets tend to exhibit greater growth ambitions and pursue global leadership.
In addition to our full range of standard business consulting services on strategy, corporate finance, organization, marketing, operational excellence, digital transformation, and more, we also help family businesses navigate their unique challenges, among them:
Although corporations are required by law to embrace formal governance rules, the families that own them are not. But good governance is no less essential for family businesses. The lack of a clear and mutually agreed governance structure can cause unnecessary conflict and destroy business value. Families need to take four steps to define an effective governance model:
Agree on the family’s overarching goal. As the owner, the family has the right to run the business as it chooses—but the family must choose. Is the goal to run the business to maximize wealth creation for current family shareholders—or to create opportunities not only for this generation but also for future ones?
Anticipate potential family hot spots. Any governance framework needs to be designed with an understanding of the issues most likely to jeopardize family harmony. Every family is different, but common examples include potential tension on leadership changes, wealth sharing, or intergenerational equity. Unless these issues are considered up front, small disputes can spark larger rifts that can threaten both family and business.
Understand the family and business context. As owners, it is important for family members to understand the business and the challenges it faces. What is the ownership structure and succession plan? What are the business’s holdings and its future strategy? What constraints—financial, regulatory, and societal, to name a few—does it face?
Create structure for the family. The governing structure needs to reflect and address the decisions and learnings from the prior three steps. Many families create a shareholders’ agreement laying out the definition of family and rules for family owners and managers—and establish governing bodies and a family code of conduct.
By anticipating and addressing key issues, family owners can reduce risk, manage conflict, and promote prosperity.
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