Values, policies and decisions in Family Business governance

Carlos Arbesu_Family Business

There are three different family business governance levels to take into account. These are (1) values, (2) policies, and (3) decisions. Business education is primarily based on decisions but experience shows us that policies and values have a more profund impact over the culture of the business. So several questions arise, such as: What are business policies? What is the difference between policies and decisions? How do we work on policies and what is their importance? What are values? Are they important for adopting policies and decisions? Are values just a question of ethics?.

Decisions: when we talk about decisions we mean specific managerial resolutions that take place in a determined business environment or circumstances.

Policies: policies relate to a broader business scenario that need a more reflective approach. The goal for policies is stablishing the framework for the making of multiple decisions in the future. When making policies we assume that the business organization is growing and we need to delegate decisions.

Values: values relate to the ethical sensibilities of the organization members. They have a profund influence on the policy-making process, and through that, in the decision-making process. For instance, transparency, justice and fairness, respect for others etc.

Decisions can be individually or personally adopted, but policy-making needs agreements and collegiality, and values must be shared. When we get to the more profund levels of governance we need to share it most. That is what business culture is all about. Likewise, this three-level governance model of decisions, policies and values, refers to the long-term, medium or short-term vision of the company and its future. Decisions usually mean short-term management, policies mean medium-term planning and values imply long-term vision.

Decisions should comply with policies, and policies should be shaped from values. In family businesses when values are really part of the culture of the organization and policies according to those are promoted, the decision-making gets easier and can be delegated. Thus, business organization is more fluid and allows business growth in an environment of trust.

Why is this triple distinction among (1) values, (2) policies and (3) decisions, important for the family business governance? It is important because the awareness about its relevance and their differences, challenges us to promote the specific bodies in which those governance levels take form.

– Decisions are often make in the management level, so family businesses in first or second generation with no board of directors and an individualistic style of decision-making can apparently be more efficient. However this can also be an obstacle for the growth of the organization. Organizational growth needs corporate governance bodies, collegiality and value-sharing throughout the different levels.

– Family businesses with boards of directors are used to stablishing management policies. Furthermore, boards of directors promote family policies and protocols or family constitutions regarding the family.

– Finally, family businesses with shareholders meetings and family meetings tend to develop their values and transmit them to directors, executives and family members.

Recognizing and evaluating the importance of policies and values in addition to decisions, involves valuing the functionality of the family business governance bodies, such as, boards of directors, shareholder meetings, family councils, family assemblies etc.

If family businesses are distinguished by their efficiency, profitability and competitiveness, it must have something to do with the alignment of the corporate governance bodies with those different levels defined by values, policies and decisions.

As always, I would be really thankful if you let me know your opinions, critiques and suggestions about this post. Ideas must be shared, discussed and improved. Also, I would be thankful if you cooperate on the diffusion of this post in the networks (Twitter, Linkedin, Facebook…) to allow more people to get access to it and discuss it.

Thank you very much and have a happy day!

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