What threats could bad governance open you up to?
In today’s complex business environment, robust governance principles are critical to the sustainability and success of modern enterprises and family offices are no exception. The ever-increasing demand for greater transparency and ethical standards coupled with the growing risk associated with information security breaches, inefficient decision-making and inadequate financial controls and reporting, makes governance a priority for any family business. Traditional family governance ensures that the right decisions are being made by the right people with the right information but modern companies are realising, in the wake of numerous damaging scandals to hit corporations across the globe, that a more sophisticated approach towards governance is required. As Sonja Kissling, Partner at Simple states
“good family governance is not a choice it is a necessity for family firms with complex family relationships to survive, you can no longer simply rely on contracts that external consultants have drawn up – It is important that the family is involved wherever questions such as values or justice find their place”
Four Potential Impacts Of Poor Family Governance
- Continuity: Many family businesses are currently faced with succession challenges. There needs to be a continuity plan to ensure that the process of succession is well planned and documented and adhered to, effectively assimilating the right people into the right roles and ensuring that there is no disruption or dispute relating to those who voluntarily or involuntarily exit the business. It is also critical to ensure that successors can seamlessly occupy a vacated role that is well-defined in how it functions and supports the business and has a clear mandate in terms of decision-making and responsibilities within a well-managed governance framework. Without solid governance principles, processes and systems, business continuity can suffer causing significant inefficiency and sometimes disrupting whatever governance there was in the first place.
- Information security: Cyber-crime statistics indicate that family offices are becoming more frequent victims of targeted data breaches, posing a significant reputational and financial risk when sensitive information is accessed. Therefore, there needs to be tight controls governing how employees and stakeholders access and share information and how they go about handling documentation. Family Governance software should be explored to ensure that the right information is immediately accessible to the right people on a secure platform, minimizing the risk of data breaches and creating a paper trail and ledger of accountability should sensitive information be leaked.
- Efficiency: The pace of change is requiring businesses to be more flexible and dynamic in their response to new trends. In order to achieve this, family offices need to ensure that they have the right structures in place, clearly defined roles and responsibilities, and a strategic planning process that facilitates efficient responses to key business requirements. Poor family governance in the area of strategic planning and decision-making negatively impacts a company’s agility and negates competitiveness, thus eliminating the essential ingredients required to survive as a going concern.
- Financial controls: It seems that the growing scrutiny of corporate commercial activity has been shaped by the many scandals to have hit well-known enterprises across the globe. The fact is that companies have a responsibility to their employees, shareholders, customers and the public to make commercial decisions that not only add value to those with a direct interest in the business, but are also in the best interest of society, the environment and the economy. External and internal transparency in financial reporting and ensuring that financial decisions are made in accordance with robust governance controls is essential in the modern world of business. Failing to do so poses a risk of corporate scandal, fraud and civil and criminal liability.
A new era of governance has emerged, empowering leaders with technology, insights, and processes to thrive and endure as well as tackle the emerging risks of operating in the modern, fast-paced world of business. Modern companies that adopt global best-practices in family governance are leveraging digital tools to establish tighter controls of company information, improved efficiency in communication and decision-making, as well as more effective tracking of operational deliverables. As technology evolves, it is inevitable that the world of business will become a more digitized and virtual space and companies need to embrace these developments to remain competitive and agile.
Interested in knowing why Trusted Family has become the leading governance platform for family offices, family businesses and boards? Schedule a call with us!