Family business governance can require patience and nuance — and sometimes there are reasons to have a non-family chair. Angus Kennard, chair of the Family Business Association and former CEO of Kennards Hire, has been there, done that.
In a family business, ineffective governance can cause organisational problems. Many never survive beyond the founder. However, by approaching growth strategically, with the right governance and support, the future can be better managed and more secure for the family, business and employees.
Even the biggest family names and businesses can have issues with succession. More than 50 per cent of Australia’s workforce is employed by a family business, according to the Family Business Association (FBA). For governance to work well, it’s important for everyone involved to keep family values front of mind.
There are many ways to establish a structure setting up a business for best practice. At Kennards, we have a governing deed of family arrangement that works for us. This is a legal document that details how that transition would happen from an ownership point of view and dictates how we govern the family. We also have level-of-authority documents that detail decision rights on such issues as changing the business name, as well as everyday governance and risk management.
Avoiding family conflict
For some businesses, a chair who is a member of the family might work well. However, one of the potential benefits of having a non-family chair might be that they can ask questions as an independent. These are questions a family member might feel uncomfortable asking or may find difficult to discuss should conflict arise.
Avoiding family conflict in the first place is the best and most proactive first step. However, we all know it can happen, and managing that in a way that doesn’t disrupt the business or dislocate members of the family can sometimes be hard. When it does happen, it can be a shock and something a family has never thought about before. Being a part of the FBA creates a community where families in business can share experiences and find support. You’re all picking up different perspectives and different experiences we share. You’re not alone.
Family businesses can be made up of family members, external investors and employees — all playing different roles. However, family, ownership and business all overlap at some level. This creates a dynamic where all players have to be considered, weighing many different perspectives for a family business to succeed and thrive. Short-sighted decision-making can mean problems down the track might affect the long-term success of the business. From a governance point of view, document everything. Leave nothing to hearsay. Define the actual terms and put them in writing.
The importance of values
Legacy, the employees and longevity are all so important. Governing for the future means looking long-term as well as knowing about the here and now of the business. There is a necessary balance of risk and innovation, along with (sometimes) a more conservative approach from others who have lived experience of what has worked before.
That’s where a family business really needs to define its values and have everyone involved sign up to those values.
Learning the business means understanding those values. We have a family retreat where we take the next generation away with every family member currently in the business.
We also all spend time together in the branches to learn about the business and ask questions. The strength of the family unit is the ultimate definition of success.
Getting the governance right
Legislation and regulation can break the back of a family business. Many family businesses are struggling to deal with increasing regulation on the governance side. We need to be sure we have the right-sized regulation — not something built for big business, but expected to work for every business.
Many family businesses are on the small side and work extremely hard with energy and passion. They provide such an enormous and important input for our economy. Finding the time to operate the business while carrying the load of understanding and doing everything required from a governance perspective can be challenging and often confusing. The FBA has advisers who can help, so don’t be afraid to ask for it.
How to get CEO succession planning right
Developed from global research by Thomas Keil and Marianna Zangrillo, this AICD director tool can help family businesses to plan an effective CEO succession structure.
Based on the degree of change required, and the time horizon, four broad classes of CEO mandates can be distinguished, which may be adapted to any industry, sector or size of organisation:
1. Continuation
The continuation mandate is a common choice when boards favour maintaining the existing strategic direction and the implementation of a given strategy with minimal changes over a relatively short period of time. The new CEO is tasked with executing an existing strategic path chosen under the predecessor, leaving them limited discretion.
It is often chosen when founders step away from CEO responsibilities, for example, in the succession of family-controlled organisations, or when the CEO departs or retires unexpectedly, but remains influential in the organisation through board positions.
2. Evolution
Boards choose evolution mandates when they desire gradual adjustments to the organisation’s strategy over a longer time horizon or when they seek changes in how such a strategy is being implemented. CEOs in evolution mandates have more leeway to make changes and over time can gradually adjust the strategy. That is what boards expect with evolution mandates, and is the main difference compared to continuation mandates. Boards may typically choose internal CEOs with experience in the business and the chosen strategy, who quite often have contributed to the creation of that strategy.
3. Transformation
Boards choose transformation mandates when they desire a fundamental change in the company’s strategic direction and a significant change to the organisation’s operating model, structure or culture over longer periods. Transformation mandates offer the CEO substantial latitude to design and implement the change around a new vision. Given the strong departure from the organisation’s past, boards are advised to consider external candidates who are able to envision the organisation without its past legacy.
4. Turnaround
Boards choose turnaround mandates when large-scale strategic changes are needed in a short time horizon. Usually, this happens when there is already some degree of financial distress or when the organisation is fundamentally misaligned with the changing environment. In this mandate, the new CEO must take drastic action to turn the organisation around or break the inertia, often under strong time pressure. To be successful, turnaround mandates typically call for an external CEO and are often the domain of turnaround specialist leaders who have repeated experience with the required fast-paced, radical restructure.
This article first appeared under the headline ‘Family Planning’ in the December 2024/January 2025 issue of Company Director magazine.
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