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Rules for preserving family unity

More family businesses are implementing governance structures that lay the ground rules to keep work and personal matters separate.

Proper governance is basically aimed at preserving the family's wealth and unity for successive generations. Those that adopt such models tend to be financially prudent, and focus on generating long-term value and maintaining quality internal controls.

RUNNING a family business comes with a set of unique issues that other forms of enterprises do not have to deal with. Foremost among them is taking into consideration the sensitivities that exist in all family relationships.

To avoid the disputes that arise among family members in a business, experts advise setting up a governance structure that addresses any corporate issues that crop up. Such a framework is separate from a corporate governance structure that is typically overseen by the board of directors.

Known as family council, these structures can be set up by the family members themselves or with the help of outside advisers. It will have a shared vision, values and acceptable behaviours and boundaries when it comes to the business. The council may meet every quarter or half year.

The framework would usually contain mechanisms for members to raise issues, facilitate decision-making and resolve disputes. The rules might dictate, for instance, how much say a family member's spouse would have in the business.

One purpose of the family council is to keep work and personal matters from crossing into each other's territory, and prevent emotions or ownership issues to get in the way of making tough corporate decisions. "The idea is to separate what is discussed at the dinner table and the office. Some families prohibit any talk of work when they are eating together as a family, while others require their children to maintain a clear protocol of hierarchy by addressing their father by name in the office," says Lee Woon Shiu, head of wealth planning, Bank of Singapore.

A family council's constitution would also spell out the roles that different members will play in the business. Some may require younger members to start at the bottom of the ladder, working their way up from the ground floor of the organisation to the higher echelons of management. Even then, their ascent may not be automatic but dependent on criteria such as qualifications, work experience and performance on the job.

At fifth-generation family business William Grant & Sons, the whiskey maker that owns the Glenfiddich and Balvenie brands, family members are expected to spend at least five years at another company. "We want them to be able to stand on their own two feet before joining the family company," said Peter Gordon, a former chairman, in a recent article.

Others may require the younger generation to work a few years in other companies first to gain more exposure before joining the family business. While they may not be ready to join as senior managers in the company, many children of wealthy families are now keen to pursue their entrepreneurial ambitions in areas they are passionate about. In such cases, some family constitutions allow for a trust fund that can be drawn upon by the children for such purposes.

"Many young people want to pursue their projects that support the community or the arts. The company can help fund these projects and harness the goodwill derived from involvement in such projects to improve the family business' brand and its overall standing in the community," says Mr Lee.

The concept of family governance is relatively new in South-east Asia, and Mr Lee estimates that no more than 20 to 30 families in the region have adopted it. He observes that Chinese clients, having come to their wealth at a relatively younger age, have been more open to implementing such governance structures.

Doing the right thing

Ultimately, proper governance is aimed at preserving the family's wealth and unity for successive generations. Those that adopt such models tend to be financially prudent, and focus on generating long-term value and maintaining quality internal controls.

"Doing things right seems to be more of a cultural obsession in these companies," says John Davis, chairman of the families-in-business programme at Harvard Business School. He notes, however, that following such principles could be difficult, especially as families expand far beyond the founder. After a few generations, there could be many family members who are working in or expecting money from the business. According to Prof Davis, those that that continue to thrive tend to be focused on growth, talent and family unity.