There are many types of businesses, and every business is for a purpose, and family-owned business (FOB) is no exception to it. Question arises what is FOB? FOB is a type of business that is owned by a family.
Globally, this is one of the most successful business ownership and management model and many economies depend on it in terms of value generation, contribution to GDP, economic activity and job creation. KPMG has recently released Global Family Business Report 2025 in which nearly 2,700 family businesses across the globe were surveyed. In response to the survey question “Governance is crucial for the growth of a family business because it establishes clear decision-making processes, reduces conflicts and ensures long-term sustainability” the following affirmative responses were received:
Ownership and Management:
Ownership of a FOB and its management are two different things. There could be scenarios where the business is owned by a family but not managed by it. Control can be through operational management roles or through board seats or in some advisory capacity. This can lead to certain complications and challenges where the family has a direct or indirect role in the management and day to day affairs of the company. Our discussion mainly revolves around FOB that are managed/ controlled by the family.
Linking FOB with governance also gets complicated as both the business and family being interconnected must be managed together. There could be multiple scenarios for such complications such as when the business expands, family grows, new generations join, and old generation retires.
For example, a person is senior age wise in family and commands respect when it comes to resolving family matters. But at the same time, he may not be suitably qualified to hold a senior position in the business. Conflict arises when he demands or expects a senior role in the business. Some other persons within a family (may be younger than him) could be better qualified to hold this position and thus should be entitled to get it.
Another example could be a scenario when a leader of the business expects to bring in his son or daughter into the business at a position for which they are not appropriately qualified. This can create a lot of conflicts in the business and family which in turn also effects business. This makes governance more important in family-owned business and warrants a structured approach to manage simultaneously both, family and business and specially where multiple family branches have business stake.
What are the peculiar governance issues in FOB?
Running a family business is a juggling act. For a business to grow and prosper, the needs of the business must be balanced against the demands and expectations of the family members. If a good governance structure is not in place, it could be hard to achieve.
Let’s have a look at the governance related issues that FOB is faced with and what makes these more complex due to the involvement of family.
- Clarity regarding roles and responsibilities:
Clarity of roles and responsibilities of family members can be an issue and can create confusions. Normally, JDs are not properly defined or even if these are defined there could be overlapping of roles due to age seniority from family perspective. This could create unnecessary conflicts which can affect the business.
Each family member should have a defined role in the business, with specific responsibilities that align with their skill sets and interests. This ensures that everyone is clear on their responsibilities and can work together effectively. It is also important that family members are not given preferential treatment, and they should also be answerable to their line manager in accordance with their defined role who could be from outside the family.
- Lack of clear decision making:
Emotions, family considerations or personal agenda can take the centre stage during any decision-making process. There is always a possibility that family related influence, interest or biasness may influence the business decision making. For example, there is a family dispute between the two branches of a family which can influence the business by rejecting a good business proposal being put forth by a member from other family branch.
This makes it important to streamline the decision-making process in a way that it doesn’t gets influenced or compromised.
- Future direction of the business:
There could be varied views when it comes to strategic business direction and setting the future strategy of the business. Some family members or branches of family could be more risk takers while others may not. Some could be tilted towards diversification while others may be not that keen towards diversification. Their decision making or opinion can be impaired due to their own current and future financial needs or continue supporting a decision that has been taken by elders from their own family branch.
How to handle the situation
The above issues mainly pertain to governance and can be addressed accordingly.
It is important to have a family constitution. Family constitution is a set of rules surrounding the family and connected business. It addresses issues like who from the family could join the business, what will be their role and responsibilities, succession planning, wealth creation and leadership of the family and business.
Governance structure of the business: it is important to have a well-defined governance structure to have clear guidelines to manage the business. It is important to have a business strategy, mission and vision statements that aligns with the family constitution. Management structure and job descriptions be properly defined to avoid any breaks in smooth running of the business. This is important as family members in business may tend to be above the business rule book. Policy for appraisal for family members be also aligned with the family constitution.
Concluding, it is important to understand that when we speak of family managed business, we talk of business and family together.
There are many case studies where expanding families have become a source of growth for the business and family. Similarly, there are case studies where disputes in the family became the reason for downfall of the business. Business needs to be looked into from both business and family lens.
All of this may look simple but can create a lot of challenges in terms of managing governance. Immature handling of which can not only derail the business but can also directly hit the family bonding and associations.
(The writer is a fellow chartered accountant having interest in governance and ESG)
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The writer is a chartered accountant having interest in governance and ESG