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So you manage your family business, but do you govern it?

So you manage your family business, but do you govern it?

I’m going to talk about “governance” in this and next week’s posts.

What is “governance”?

Governance and Management are two different things. Managing is what you think it is, where you manage the operations of your business, manage the finances, manage the staff ensuring they are given responsibilities and rewards, manage purchases and sales and quality of product and service. Managing is what gets things done in the business, in the most efficient and productive way, providing the results you want.

Governance on the other hand is about the oversight of the business, not the operations. Governance is about strategically setting the business’ direction, goals, limitation and borders. The best example of the difference I can give you is a practical example of when the business’ founder “gives up the reins.

Imagine the family business where the founder, perhaps the Parent started the business years ago. Typically he or she started on their own, doing everything from sales to purchasing and inventory. In that simple start-up he or she managed the business and the staff of one as well as set direction and decided what the business should and should not do overall. The Parent decided what markets and products they got into and what they would not and why; they started hiring staff and worked out what type of people they would hire and how they should be treated; and, in time, they worked out what were the “right things to do” in the business.

Then, as they expanded the business they brought in family members, sons and daughters, to help in the business. These offspring worked in the business to learn the ropes (even if they might have gone to university or college to learn new and more professional techniques). Eventually, sons and daughters took up management positions, they managed the sales team; or looked after the finances and investments; they hired, fired and fired and trained and rewarded staff; they looked after inventory and production and service.

Then one day the Parent decided to take their hands off the day to day business, while still being involved. The eldest daughter was appointed in charge of the business – they might have given her the title of CEO or MD or General manager, or just “Boss”.

At this point the governance of the business and the management of the business diverged. The Parent represents “governance” while the children are “managers”.

And the difference?

Can you imagine what would happen if eldest daughter decided to hire cheap labour against the business values of quality staff and quality rewards? Or decided to buy cheaper materials from overseas when the business had always worked on supporting local quality suppliers? Or how about if she decided to branch out from selling hand-crafted toys to cheap plastic toys? Read More

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