Understanding Family Governance; For Families Who Built Something Great and Want it to Endure

Understanding Family Governance; For Families Who Built Something Great and Want it to Endure

Part Two of Three: From Personalities to Principles

A founder once told his advisor something that stayed with her for years. He said: “In the beginning, we made every decision at the dinner table. My wife handled the accounts. My brother-in-law ran the warehouse. My eldest handled sales. We never needed a meeting — we just talked.”

He paused, then added: “But now there are seventeen family members involved in the business. And we still try to make decisions at the dinner table. It no longer works.”

This is the story of most successful family businesses at a certain stage of growth. The informal systems that worked beautifully in the founding years — built on trust, proximity and shared sacrifice — begin to buckle under the weight of complexity. More family members. More stakeholders. More money. More at stake.

The answer is not to lose the warmth and the trust. The answer is to protect it — by giving it structure.

Why Informality Works, Then Fails

In the early years, informality is a strength. Decisions happen fast. There is no bureaucracy. The founder’s instinct and authority hold everything together. Family members wear multiple hats without confusion because the founder is always there to clarify, to arbitrate, to decide.

But informality has a hidden cost: it depends entirely on the founder’s presence. The moment the founder steps back — whether through age, illness or death — the invisible architecture that held everything together disappears with them. And what remains is a group of capable, well-meaning people who suddenly discover they have no agreed framework for making decisions together.

This is the moment when the cracks appear. Not because the children love each other less, but because no one ever built the bridge that would carry them from here to the next generation.

“We do not want conflict over power and money when our parents are no longer around. We want to get this right while they are still here”.

These words, spoken by an eldest child in a family business session, capture exactly why this work matters — and why it must happen now, not later.

The Three Pillars of Family Structure

Moving from informal to formal does not mean becoming cold or corporate. It means creating three things that every enduring family business eventually builds:

The first is a Family Council. This is the forum where the family — not just the executives — comes together to discuss matters that affect everyone: Values, vision, the rules for how family members join the business, how profits are distributed and how major decisions are made. It is not a board meeting. It is a family meeting with an agenda, proper documentation and a commitment to include every voice.

The second is a Board of Directors or an Advisory Board. This is where the business is governed. It includes family members in their capacity as business owners and leaders, and ideally includes trusted independent advisors who bring perspective that family alone cannot provide. The board asks the hard questions: Is this the right strategy? Are we growing sustainably? Are we putting the right people in the right roles — regardless of their surname?

The third is a Family Constitution, sometimes called a Family Charter. This is the founding document of the family’s governance — the written agreement that captures the family’s values, its vision for the future, the rules for employment and ownership, the process for resolving disputes and the principles that will guide the next generation. It is not a legal document in the first instance. It is a moral one. It is the family’s promise to itself.

Honest Conversations About Roles

One of the most difficult but most important parts of building family structure is the honest conversation about roles. Not just what each family member does today, but why they are doing it — and whether it is the right fit.

In many family businesses, children joined not entirely by choice. They joined because it was expected. Because the founder needed them. Because saying no would have felt like a betrayal of everything their parents sacrificed. Some of them thrived. Some of them are quietly, privately miserable — doing work they were never meant to do, in roles they never chose.

A formal governance process creates the space to have this conversation with honesty and without blame. It allows the family to ask: Who is here because they truly love this business? Who is here out of duty? Who has a gift that the business is not using? And — hardest of all — are there family members in senior roles who would be better served, and would better serve the family, in a different capacity?

These conversations are not betrayals. They are acts of love. They are what it looks like to care more about the family’s future than about avoiding a difficult evening.

Starting the Journey

The move to formal structure does not happen overnight, and it does not require perfection. It begins with a single, honest conversation — ideally while the founders are still active, still present and still able to guide the values and the vision they want to pass on.

The founders who begin this process are not admitting weakness. They are demonstrating the highest form of leadership: the wisdom to build something that will outlast them.

Next: Part Three — Stewardship, Succession, and the Leader Who Lets Go

This three-part series is the second installment in an ongoing column on Family Governance. It explores key topics such as the Family Council, the Family Constitution, succession planning, conflict resolution, and family employment policies.

Prof Enrique M. Soriano serves as a Mentor at the Singapore Institute of Directors Board Readiness Programme. The views and opinions expressed are his own.

-Phnom Penh Post-