Family Business Governance Across Generations

Family business governance is about effectively making decisions surrounding your family, your business and the intersection between the two. A main aspect for family business owners is the transition of leadership. If younger generations want to participate in or run the family enterprise, it is important to lean into the family business governance structure to ensure a successful transition.

Plan Early

Preparing future business leaders may take years of education, training and experience, so start planning early. Families may be uncomfortable discussing wealth and inheritance planning along with business transition, but failure to do so can create unnecessary challenges. An established family business governance structure will ensure important decisions impacting the business are made thoughtfully with input from all stakeholders.

Business owners who are contemplating a transition in favor of a subsequent generation or a strategic buyer should understand who will continue to hold business interests, the rights and tax implications of that ownership. Consider the eventual distribution of wealth, especially when a business is involved. Some family members may have an ownership interest but do not help run or manage the business. In your estate plan, provide for liquidity needs for distributions, administration and the eventual payment of transfer taxes. Deconstructing total wealth into discrete segments — providing for lifestyle needs, legacy desire and philanthropic interests — can serve the family’s wealth and business interests for generations.

Preparing the Next Generation

The rising generation of business leaders may face generational disputes, changing company demands and other challenges. Preparing them to be successful is a family affair that requires a collaborative working environment. A comprehensive family business governance structure can help efficiently oversee the family business while keeping an eye on strategic growth and preparing the next generation for leadership.

There are foundational elements to consider as you prepare for successful family wealth leadership:

• Commitment: Determines your family’s dedication to perpetuate long-term wealth and business goals.
• Shared vision: Provides a foundation for guiding future family leaders so everyone is aligned with the business’s interests.
• Shared values: Equips the family with shared principles to articulate what they stand for and what is expected of all family members in the business.
• Education: Helps rising generations become responsible, competent and confident business leaders. Education and on-the-job training should begin early and be consistent over time.

Foster an environment that encourages younger family members to have a say in business operations. They may have ideas or be willing to take calculated risks in the business that prior generations were not. Create and maintain open lines of communication to avoid or address potential conflicts in a timely and constructive manner. Families should be prepared for personal concerns that carry over into the workplace and have mechanisms in place that facilitate impartial resolution. A family business that succeeds will leverage the expertise of outside advisors to ensure that shareholder or operating agreements are in place and appropriate.

Rely on Your Advisor for Guidance

Be proactive and start the conversation about family business governance and succession planning now. Your wealth advisor can guide you through the components of an effective governance framework, including transitioning your business, tax implications and other factors.