By Yusra Sarkar
The topic of family governance continues to climb the agenda in the list of priorities for today’s family run businesses. Maintenance of the family’s reputation is of overriding importance to the continued success of the business and it ought not be underestimated.
The issue has become increasingly difficult since the advent and advancement of social media environment. We only have to look at Donald Trump’s twitter posts, Boris Johnson’s historic journalism or Prince Andrew’s recent BBC interview to realise the power of social media today. We live in an increasingly sophisticated, direct and fast paced environment where reputations can be damaged and potentially destroyed overnight.
Classically, solutions for the maintenance of family wealth focussed on corporate governance and perhaps dealt with some basic requirements (perhaps qualifications or experience) to deal with succession of management of the family business. Today, the family constitution can cover an extremely wide range of issues designed to deliver a sustainable multi-generational business. It is now almost unquestionable that the family governance mechanics will deal with reputation management.
Why? In essence, it’s because a family, their business and the family’s wealth are so intertwined that any reputational damage can have a lasting and devastating affect on the business and the family’s standing in the public eye and in the social and business circles in which they mix. It necessarily follows that families are well advised to try and manage these issues from the get-go and lay down the foundations of what behaviour and conduct are acceptable in all areas of the family’s life. The ambition is to mitigate reputational risks that may undermine the credibility of the family, and by extension, the business.
‘We’re seeing a significant shift in attitude and an understanding that reputation is essential to bringing the necessary integrity that helps a family business can survive and thrive in the long-haul,’ says Richard Wakeham, Group Head of Structuring. ‘In today’s world, nobody wants their company to be led by fantastic leader who simultaneously practices unfitting behaviour outside of the office, or vice versa, and family businesses are no different. Setting out a framework to avoid a reputational disaster is an incredibly helpful starting point provided that the expectations are crystal clear. However, words alone will not be sufficient and the family will need to work hard to ensure that the ethos underpinning the framework is embedded throughout the family,’ adds Richard.
If a family constitution is to stand the test of time, it is unlikely to be made up of very strict conduct rules; it is much more likely to contain core principles which can flex and evolve sufficiently to address the dynamic global environment of today. If they are going to be truly embedded in the family, the principles of good family governance apply as much to those working within the family business general family wealth as they do to those outside the family businesses. ‘Ensuring that the wider family understand that their actions have consequences is also key to ensuring accountability and upholding reputation,’ explains Richard.
So while families are formalising their approach to big topics like sustainability, they are also addressing day-to-day subjects, too. Social media exposure wasn’t something previous generations dealt with, but with younger family members active users on platforms like Instagram, Snapchat and the ever-popular TikTok, upholding the standards that reflect family values is vital.
‘Social media can seem like a trivial example, but teaching younger generations what is expected of them on these public domains, and that they are linked to how people perceive the family is increasingly a crucial consideration when it comes to a family’s long-term outlook. After all, what you say online when you are 16 can come back to haunt you when you are running a family business at 36 – families are increasingly aware of the need to bridge this gap,’ says Richard.
For more information, please contact Richard Wakeham.