Key Factors Toward Effective Family Governance

Families must develop a governance framework to face possible challenges. Several key factors could influence the development of this framework. Still, it should include, at the barest minimum, the family philosophy, rules of participation in the family firm, and responsible resource management.

Family Philosophy

The family must define their family philosophy, which includes shared values, mission, and vision. The family philosophy should guide the direction of the business and the behavior of each family member.

Rules of Participation

Family members who wish to participate in the family business must pass certain standards. These standards could include educational attainment, intelligence, adherence to shared values, work ethics, and professional experience.

Resource Management

The family must ensure that the governance framework should include resource management. Resource management is about creating wealth, maintaining it, and growing it. Without clear rules, a generation could lose the wealth gathered by the previous generation.

Essential Aspects of Good Governance

Good governance has many aspects in a family business context. However, the family should give special attention to those mentioned above. The family philosophy defines who the family should be. Rules of participation will guide everyone who wants to participate in and benefit from the family firm. They can also deter unqualified family members. And, of course, the family should continue to create, maintain, and grow wealth. Otherwise, it will not pass three generations.

The Chinese proverb, "Wealth does not pass three generations," serves as a warning. But a family who heeds the warning would seek to practice good governance. There will always be challenges, but each challenge can be addressed. One of the best ways is to write a document of good governance, which we call the family constitution.