FAMILY GOVERNANCE: The arguement for natural governance.
As a Family Business practitioner, I never tire of reading and researching on family business topics. Moreso as a practitioner in Africa, where the realization of businesses as Family businesses is only now awakening, I have found that knowledge allows me to better serve my clients. However, at times my clients are better placed to teach me how and what that knowledge looks like. As we all may know nothing is new under the sun. Similarly so, if one person has faced a challenge, there are many more facing it. I have mentioned before the two narratives I have come across in African businesses. The first Is the narrative of African Family Business as one of failure. Where the owner passes or becomes incapacitated and the business sinks. It may take a while but as sure as the sun rises, it sinks. And then there are successful ones. The ones that rise above and at times make it to the next generation and at times have been plagued by the narrative of using witchcraft to stay afloat or being involved in criminal or illegal activities.
In the narrative of family businesses and family governance, it should be noted that there are some family businesses who have been able to implement family governance tools. Whilst the family constitution is heralded as one of the best tops for family governance, there are families that have never been exposed to such tools and have found ways of maintaining the function of family within the business setting and making it work harmoniously. This has become well known as natural family governance. Where Boundaries, informal decision-making structures, and an aligned set of values and the roles that people perform are the four elements constituting natural governance.
Boundaries: Natural governance in a family business is predominantly based on boundaries. These are often communicated verbally through the lives of the family. For example, we don’t operate on Sundays, we do not speak business at home, or any other rules the family believes will ensure they operate harmoniously. Boundary setting, however, is most often a random activity, meaning that the boundaries can sometimes be vague. This may tempt some individuals in the family to ignore or reshape boundaries in pursuit of their own interests, such as raising a family issue in the boardroom or at the office. You will find that other family members will attempt to police the boundaries to ensure the natural order of things remains in sync. In natural governance monitoring, reshaping, and shifting boundaries is an organic function. However, this has its own flaws in that, as the family or business gets bigger and more complex verbal and mutual agreements tend to get swept under the carpets and kitchen mats. Seniority of age or relationship then is used to change the once functioning boundaries and can leave a series of rips and broken pots in its aftermath.
Informal decision-making structures: Many critics of family businesses often claim that family businesses are notorious for making decisions without due process. The families tend to make important discussions during a regular get-together or weekend meal, rather than in a proper formal business meeting. This approach is looked down upon for lack of formality, accountability, and transparency, but, practically, you may ask, what is the problem in this way of doing things? Doesn’t natural governance, help an enterprising family to achieve its version of success? As a business gets bigger or complex informal decision making affects the business growth and even the family attitude towards the business itself.
A set of norms or values: a set of norms or values that are acknowledged by the key stakeholders as a guide when assessing other people, evaluating situations and justifying actions in relation to the business is another natural governance tool. These protocols or practices are usually not written down by the family business practicing natural governance, but this doesn’t mean they do not exist. You will find that they are imparted and enforced through innumerable day-to-day interactions at all levels of the family and business and effectively become custom and practice in the family business.
Roles: The final element of natural governance is the roles that the family perform in order to maintain the overall equilibrium achieved through natural governance. This might mean some family members have to perform roles against their wishes; for example, attending a family event they would prefer to avoid, or even setting aside career aspirations in favour of a role in the family business. These compromises and trade-offs sometimes can cause a lot of underlying resentment. Natural governance seems to be a silent but aggressive tool that can work in spaces where the family business is not at enterprise level nor does it have multiple stakeholders with different interests.
Natural governance as a tool does not need to be perfect; it needs to be good enough to enable the key stakeholders to be willing to devote part of their lives to being in a relationship of financial interdependence with some of their relatives, which is what being in a family business means. In Africa Family Businesses tend to be secretive, using natural governance more than the more formal governance tools. However, it has shown that in the majority of families, this does not work because the failure rate is high when the founder is no longer there to impose the natural governance structures.
A lot of functional family businesses spend more time focused on growth and the shine of their success. The wisdom of prudent planning is usually excused by “we have a solid family structure and our way works.” And for a time and maybe a few generations it may work. But experience has shown that it’s only a matter of time before the formal structured constitution becomes a necessary tool. As we cannot always see into the future but we can contribute to it by putting it down in written formality.