Family governance

　　Many business management experts believe the biggest threat to the sustainability of a family business is conflicts among family members. Such conflicts may arise from decisions made by the heirs, competition among family members, or disputes over policies regarding compensation and dividends. These conflicts may result in bad business decisions or never-ending power struggle among family members . In order to solve this problem, the concept of “family governance” arises. This concept comes from separating “family” and “business.” In terms of business, business development is implemented through corporate governance; in terms of family, intergenerational succession and growth is accomplished through family governance .

　　When a family business is still run by the first generation that established the business, usually the management and the ownership are mostly overlapped within the family. But if the family business has been passed down to the second or third generation, due to the increase of family members and the difference in individual capability and opinions, whether management, ownership, and the family should still be overlapped is a topic worthy of discussion. When the business is passed down from the first generation to the second generation, or the number of potential successors is few, the selection and training of successors are more urgent than family governance. But after the second generation, when the number of family members increases, family governance becomes crucial to the sustainability of the family business.　　

　　Therefore, in order to successfully govern a family business, the family needs to establish a document that provides a unique and clear vision for the family. This document should expressly designate the family members who participate in the management of the business, the arrangement of intergenerational succession, the handling of expectations of all family members, whether they are in the management of the family business or not, and how the family will interact with the family business and the management of the family business. In terms of the construct of family governance, many family businesses with over 100 years of history have a “family constitution” and a “family board” as the means for family conflict resolution and family cohesion and communication.

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Family Constitution

　　When a family and its family business go through its first or second-generation succession, the number of people involved in the family business naturally increases, and each family member’s expectation of the family business will differ gradually, which may give rise to conflicts. In order to handle such conflicts, many families establish a “family constitution” as a document that states the relationship between the family members and their family business and defines the management strategies and construct of the family business. In a family constitution, one can often find provisions regarding “family goal, philosophy and mission,” “family governance structure,” “family equity,” “family business succession and talent development,” “disposition of family constitution violation,” etc. as the standards for handling matters among family members during transitions or emergencies. However, one should note that since the family constitution is not legally binding to family members, its enforceability depends on the self-discipline of and trust among the family members. Hence, for family succession in practice, family constitutions usually come with the planning of a closed company or family trust to strengthen the restraint of the family constitution on family members.

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Family Board

　　In terms of the structure of family governance, a very important goal of family governance is to provide a mutual communication channel between the family members and the business to promote mutual understanding and build consensus. Therefore, many families would set up family boards. Through regular meetings, family members can discuss topics arising from the family and the business, and the family board can be an agency for family strategic planning. At the same time, it can implement the family values instilled in the family constitution to set the direction of family policy and be a channel for communication between family members .

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