Governance

 
Family business governance case studies
German study of family constitutions (in German)
Amin Nasser talks about family business governance

Best practices for family firms

Governance is uppermost in everybody’s mind today. But governance means different things in different organisations.  

Take family enterprises. No matter what their size, the unique—and often volatile—mix of personal family dynamics, business strategy and ownership criteria can create an emotionally charged environment that makes decision-making, not to mention day-to-day management, challenging. And as the founding generation ages, succession and power issues across an expanding family can create cascading concerns.

Safety in structure

Many family businesses have learned that a little structure can be extremely helpful when it comes time to discuss sensitive issues—such as ownership shares, rights and responsibilities, the competence of family-member managers, and agreeing on a strategy that is best for both the business and the family.

At PwC, we address family business governance from a holistic perspective. From family constitutions to family councils, boards of directors to family and non-family managers, we can help you improve your governance and thereby preserve family harmony—setting the stage for the commercial success you deserve.

It begins with a clear vision—and clear lines of communication

Like any business, a family enterprise must be built on a foundation of mutual agreement on certain fundamental questions: What is our vision—and our mission—for this business? What strategy should we follow to reach our goals? What structures and people do we need to succeed? How do we handle shares, inheritance, in-laws?

We know that good family and business governance go hand in hand with sustained benefits. PwC’s Family Business Services professionals, arrayed across our global network of firms, are well placed to help you capture those benefits, whilst strengthening your organisation.

If your family and business have expanded over the years and the family dynamics are changing—or if your business is just starting to grow—we invite you to contact us to learn more about how we can help you meet your goals for optimal governance and performance.

Case studies

The client's challenge

The founder wanted to transfer ownership of the family business to his children and to give them more authority but was concerned that by doing so, he would lose control. He wanted the business to be run by his children but also wanted involvement at a strategic level. He also wanted to ensure that if there were conflicts between his children, he will have the ability to exercise some veto powers.

Our response

We helped the client create an effective family advisory board where the founder and his children discussed and agreed on business issues at a strategic level. Although the founder would allow his children to make business decisions, he was given the right to retain ‘veto’ powers on decisions during his lifetime but only on very serious situations. The founder was then able to gift most of his shares to his children, who had voting rights on business decisions etc. but leaving the founder with ‘veto’ powers on important decisions.

The client's challenge

When the founder passed away a few years ago, some of the family members decided to leave the family business due to conflicts around the business vision. Conflicts escalated to a point where some of the family members went to court. There was no agreed exit mechanism to manage such situations. The family members argued on:

  • whether selling to an outsider will be allowed or not;
  • the valuation method that should be used for valuing the shares of the exiting shareholder;
  • when and how should the exit process take place.

Our response

We carried out several workshops with the family to discuss and help the family formulate a united vision for the business and for the family. We then assisted the family in creating protocols which formalised their business relationship between the family members. These protocols also addressed the issue of family exits and valuation including:

  • the process and timing of exit;
  • the family members eligible to purchase shares;
  • selection of the most suitable valuation method;
  • the company’s obligation to buy shares.

The client's challenge

A leading family business currently run by its second and third generation family members saw the number of family members wishing to join the family business increasing. The family did not have a system in place for recruiting family members and this resulted in all family members being provided employment irrespective of qualification.

Our response

We helped the client develop a ‘family employment policy’ that specifies the criteria and the process of joining the family business. The policy also addressed the process of applying for family employment, coaching, mentoring, training and evaluation.

The client's challenge

When the founder passed away several years ago, the second generation family members - who were each responsible for managing one of the unrelated business units - started to treat these units like their own businesses and did not allow other family members - who were also shareholders - to interfere in the business decisions made. There was no accountability for the results of the individual units to the shareholders and those family members who managed these units also involved their own children in the business.

Our response

We helped the client set up a holding company board which oversees how the business unit management serves and protects the long-term interests of all shareholders. A system for electing the board members was also put in place along with selection criteria to structure a professional and efficient board comprising family and non-family professional directors, executive and non-executive directors etc. There was also a set of rules included in the family protocols which require the children of those family members who ran their own business units to work in other business units so that they do not report directly to their own parent.