Some founders who have run family businesses for decades tend to rely heavily on one or two trusted individuals. This is understandable, since these founders and their trusted partners have built the company together from the very beginning. However, personal trust alone is not enough when it comes to the sustainability of a family business. This article discusses why combining trust with a robust management system is one of the keys for a founder to ensure the multigenerational sustainability of a family business, allowing the founder to relinquish operational control with peace of mind.
Going Beyond Personal Trust
Trust in executives who have served for a long time and helped grow the company together is indeed important. However, relying on the same individuals without a supporting system can pose a risk to the future sustainability of the family business.
A healthy business should not depend solely on individuals. Companies need to establish an internal oversight system—as simple as having internal controls. The combination of trust in executives and a solid management system will create a more independent and professional corporate structure.
Pillars of Corporate Governance
To establish an internal oversight system, several factors must be considered, including:
- Code of Conduct: Guidelines for ethical conduct in the company.
- Compensation System: Transparent standards for compensation.
- KPIs: Objective metrics for measuring work performance.
Remote Control Strategy
Once the management system is running smoothly, a founder has the flexibility to step back from day-to-day operations without losing oversight.
A well-structured oversight system in a family business allows the owner to continue monitoring the company’s condition without needing to be involved in its day-to-day operations. The next step after this is to communicate this succession plan to family members and professionals to ensure agreement from all parties.
Establishing a robust system requires a Code of Conduct, including discussions on compensation, remuneration, KPIs, and financial and operational control systems[1]
David Bingei, Fidelitas Advisors
Strengthening corporate governance is a sound investment for any company. By shifting from individual-based management to system-based management, a company becomes more stable and better prepared to ensure a harmonious leadership transition for future generations.
