Family constitutions are a form of governance that sets up structure to regulate the manner in which family business matters are handled. A family constitution has the effect of helping a family run an efficient, effective, customer-focused and community-focused business. This type of focus ups the ante on the quality of behavior inside a family enterprise.
Corporate governance in family business is essential for long-term success. Family businesses that have survived over the generations have an internal governance structure that parallels the structures found in leading businesses around the world. Such structures provide an internal discipline on how family and non-family members will function within the business.
A policy for how family members will be permitted to participate in the family business can be referred to as Rules of Engagement. Family business rules are often manifested in the form of a Family Business Employment Policy. Family members working in the family business must show up, produce and perform to the same standards as non-family employees.
All owners of a family business eventually must consider a family business transfer from one generation to another. For a smooth transfer, families are encouraged to make a fully documented, comprehensive plan for all the things that must happen in the business and in their families so that transfer of control can occur in a timely manner.
The founders of a family business make it possible for future generations to benefit from their vision and entrepreneurial spirit. A true leader inspires success. When considering succession in family business, the founders or leaders of the company want future generations to have the same level of motivation, drive and passion for moving the business forward.
A properly constructed family business advisory board gives owners access to high-level executive and management talent beyond those employed by the company. Advisory boards create a forum in which active owners, in concert with other advisors, impact the strategic issues facing the company. The board makes non-binding recommendations on strategic issues.
Every family faces the possibility of a key executive in the family business suddenly being taken either by accident or natural cause. Life can be fragile and no person is exempt from such forces. Strategic planning for the family business requires the family to prepare for the unexpected with the development of an emergency action plan.
There can be advantages of nepotism. Experience has shown that nepotism works if and only if the values of the family members are congruent and the successor is fully competent. Every company needs a source of competent, dependable employees, and this is where the advantages of nepotism can come into play.
How a family business is structured can have a very strong influence on how well the business operates. A family business organizational structure should include a hierarchy in which people have clear responsibility for a job, have the authority to get the job done and are held accountable for the outcomes.