1 – Lack of a clear definition of vision and values
It is essential that the family clearly defines and communicates its values and vision on governance. If these differ from the current governance of the business, one must look at how they can be aligned. The values, vision, and goals the family wants to achieve should be integrated into a family charter.
2 – Lack of transparency and reporting to the family
Information must be equal among family members. It is the foundation for trust within the family business. In practice, meetings should be organized to ensure that decisions are made by family members who have all the necessary information. In this context, a family council can ensure a link between the family and the business.
3 – Lack of a framework that organizes the relationships between family and business
A tailor-made framework that evolves dynamically supports the long-term development of the family business. In practice, a family charter can define the strategic direction of the business in accordance with the family’s goals. The responsibilities and competencies of the various bodies must be clearly defined, as well as the possibility for family members to sell their shares and the way the business will be valued.
4 – Difference in treatment and unequal distribution of assets and income among children
The distribution of assets must be fair and transparent to avoid frustrations and jealousy. A global wealth strategy must be defined by the family.
5 – Transfer of family conflicts to the business and poor management thereof
The family council must organize the involvement of family members so that conflicts remain outside the business. The family charter can, if necessary, organize an exit policy for family members.
6 – Risk management and failure to anticipate problems related to the business
Every transition must be well planned and anticipated. A contingency plan to replace the business leader in case of unexpected absence must be prepared (organization of responsibilities and decision-making process).
The risk appetite must be defined by the board of directors, which is also responsible for identifying risks and measures to cover them. This also requires alignment among family shareholders.
7 – Confusion between the role of shareholder and that of manager
The family should not give instructions to the management of the business by bypassing the governing bodies. Conversely, the board of directors must ensure that shareholders receive the appropriate level of information, respecting confidentiality constraints. Fair treatment of the various shareholders is essential and forms the cornerstone of any governance.
8 – Conflicts of interest in transactions between the business and a family member
Transactions that cause conflicts of interest should be avoided as much as possible. In case of a transaction, other family members should be informed and consulted, and the terms of the transaction should be independently established. For example, it is important that any valuation of contributions in kind by certain family members is carried out independently.
9 – No clear policy on liquidity and capital compensation
Family businesses sometimes face conflicting agendas between the need for financing for growth, the liquidity needs of family members, and the desire to maintain control over the business. It is therefore essential that the family agrees on an “equity story” and financing that takes into account liquidity and growth needs.
It is important to avoid situations where there are no exit options or no minimal liquidity, or where payments are mainly made through current accounts.
10 – Insufficient preparation of the NextGen
It is crucial to involve younger generations early enough and carefully plan the transfer to avoid splitting the capital.
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If you have any questions or want to know more, please feel free to contact us, we will be happy to advise you in all your questions about your family business.
