TM3 Flashcards
(14 cards)
What is governance in family businesses?
The formal and informal systems, practices, and processes used to coordinate interactions among the family, ownership, and management entities. It defines:
- Rights/responsibilities of stakeholders.
- Decision-making rules.
- Monitoring mechanisms.
What are the three governance systems in family firms?
- Corporate Governance (Board of Directors, CEO oversight).
- Ownership Governance (Shareholder agreements, assemblies).
- Family Governance (Family councils, charters).
What is the principal-principal problem?
Conflicts between majority family owners and minority owners (family or non-family), where majority owners prioritize their interests (e.g., dividends, control) over others.
(Owners vs Owners)
Example: A founder’s children dilute shares of cousins.
How does the principal-agent problem differ in family firms?
Classic: Owners (principals) vs. Managers (agents).
Family Firms: Altruism can weaken control (e.g., tolerating underperforming family managers).
Risk: Free-riding by family members.
Describe the 4 governance stages as family firms grow.
- Owner-Manager: Single leader (founder).
- Sibling Partnership: Shared ownership among siblings.
- Cousin Consortium: Decentralized, multiple branches.
- Family Enterprise: Sophisticated structures (family offices).
What are the 5 key tasks of the board?
- Control (monitor management).
- Service (advise on strategy).
- Network (connect to stakeholders).
- Communication (ensure transparency).
- Succession (plan leadership transitions).
Name the 4 quadrants of directors based on affiliations.
Quadrant I: Independent directors (no family/business ties).
Quadrant II: Family-owners (not in management).
Quadrant III: Triple-crown (family + owner + manager).
Quadrant IV: Non-family executives (business-only).
What is the purpose of a shareholders’ agreement?
A legally binding document to:
* Define share transfer rules (e.g., right of first refusal).
* Prevent conflicts (e.g., dividend policies).
* Plan for emergencies (e.g., death, divorce).
What does a family council do?
A formal family governance body that:
- Drafts the family charter.
- Organizes family meetings.
- Mediates conflicts.
- Educates next-gen members.
What is included in a family charter?
- Family values/mission.
- Employment policies (e.g., qualifications for family members).
- Succession guidelines.
- Conflict-resolution mechanisms.
Is a written agreement that formalizes the family’s values, rules, and policies for engaging with the business. Used when the family grows complex (e.g., transitioning to cousin consortium)
What is a family office?
A private entity managing a family’s wealth and services:
- Single-family office: Serves one family.
- Multi-family office: Serves multiple families.
- Functions: Investments, philanthropy, legal/tax support.
How to ensure effective governance?
- Separate forums (family vs. business meetings).
- Independent directors (25-35% of the board).
- Clear policies (e.g., entry rules for family members).
- Regular reviews (update agreements every 5 years).
Difference between the Family Charter and th Family Genogram
Family Charter: A written agreement that formalizes the family’s values, rules, and policies for engaging with the business (e.g., employment criteria, conflict resolution).
Example: “Family members must work outside the business for 3 years before joining.”
Family Genogram: A visual diagram (like a family tree) mapping biological/legal relationships, roles in the business, and emotional dynamics (e.g., conflicts, alliances).
Example: A chart showing founders, successors, and strained relationships.
