The so called “governance fatigue” in family businesses

Carlos Arbesu

Family businesses have been dealing with governance for almost 30 years, since the field started evolving. Both families and consultants know how enthusiastically they started working on family protocols, constitutions or corporate governance statutes, and how often these end up forgotten in a drawer, just as “paper rules”.

Talking about governance and actually working in decision-making bodies are completely different things. Families love to talk about legacy, the future, continuity, rules of entry etc., but find it really difficult to enter into a stage of formal, regular, governance meetings where family members have to debate, build consensus around difficult issues and finally make decisions.

The majority of family businesses have to deal first with profesionalising the board of directors and giving more formality to shareholder structures as owner´s councils or shareholder assemblies. So it takes them an enormous effort to add formality and regularity to family governance too. Perhaps that is why family businesses usually concentrate their attention on improving business governance, but relating to family governance they prefer to take more time and rely on informal family meetings or assemblies. Family councils and family associations are thus relegated.

Often, after some years of having established a formal family council –usually in the family protocol or constitution- families get tired of meetings, formalities, agendas and stress, and end up abandoning the work of family governance bodies, and leave them just for times when they are badly needed. There is an evident loophole because families, while affirming they have family governance bodies into place, do not work regularly and formally with them. They have them just on “paper”, and only work with them from time to time. Is it really a good and sound family governance practice? Does it really serve family governance purposes? It is nearly impossible for this informal style of family governance to meet with its objectives.

Families find it too formal to meet in family councils or associations with non family or independent facilitators, and with the passing of time boredom and the temptation of informality and relaxation comes into the scene. Truth is that family governance bodies –such as family councils- hardly ever function well without external help from consultants and facilitators. Another common issue to face for the developing family governance bodies is underinvestment. Families did not learn, up to now, how important it is to invest in family governance bodies as much as they invest in business governance bodies. For a family business working on continuity, the importance of a family council should be no less than that of a board of directors.

Causes of such family governance fatigue and obstacles to implement a sound family governance system are thus:
1. The profesionalized work it entails, regular meetings with fixed schedules and agendas, the continuous effort to deal with family problems, tensions, and disappointments, building of consensus, making of decisions etc.
2. The power some family members feel they risk loosing
3. The capital or constant investment it requires. Who pays for that? The business or the family?

There is indeed tension between informality –as it corresponds to family nature- and the formalities of real governance processes. Families aknowledge that formality is required for business governance –boards of directors, shareholder assemblies- but they do not understand nor comprehend that it is also needed for family governance purposes. Governance implies debating, deliberating and decision-making, and it requires fair processes. Family meetings and reunions are fun, but governance is difficult and require formal and fair processes. Will families deal appropriately with this difficulties in the future? Will they overcome the difficulties of their specific governance fatigue?

Perhaps, family businesses need to reach a certain stage of evolution -both in family members and wealth-, to stablish family governance bodies, put them into action, and not to generate fatigue among family members with its functionality. Consultants, facilitators and academics should also be aware of the risks that are implied by not being patient and timely when setting up those governance bodies. It is always better to show respect for natural family processes than to implement governance bodies without an actual need.

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 nice day!

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