Ownership and Trust

Most small business environments are created by an individual or a family. In the case of a small family business, relationships can be close and intense. This means that such businesses can often be emotionally laden environments. When families have interpersonal difficulties, emotional intelligence in business can be difficult to maintain.

As such, this particular form of ownership can create potential risks. These risks can often be exacerbated when there is a high degree of power concentrated in one person, usually the founder of the business, or in one or two other family members. Such concentration can lead to poor decision-making, a myopic mindset and/or an unclear focus.

Therefore, it is incumbent upon successful and effective small business owners to establish a business policy development framework that ensures that these risk factors are managed and, where possible, eliminated from their companies.

Effective business owners welcome the idea of adopting a governance model that ensures that the best interests of the business are served, as opposed simply to serving the interests of one or two individual family members.

They also set time aside to invest in leadership skills development, at this governance level, as they know such development is essential for the success of their business.

Having the Right People in Governance Roles

As in the recruitment of employees, the recruitment of company directors must be closely attended to in small business. For example, just because John or Mary is the son or daughter of the business owner, it does not necessarily follow that the company will be best served by their sitting in a governance role.

This role is best served by bringing the right mix of skills to bear, together with the proper mindset and the ability to separate family matters from business concerns. This is best practice in business development and risk management.

Having clear specifications, roles and functions spelled out through policy and position descriptions enables people to be bound to a code of conduct and underpins effective decision making at this important strategic level. Again, adequate time must be deliberately and consciously devoted to this function for it to be performed effectively.

Objectivity in Decision Making

One of the real dangers for small to medium-sized businesses is having the proper separation of roles between strategic, longer term thinking and the more immediate operational concerns. These two streams are separate, though highly interrelated. In a family business, there are the potential traps of meddling and getting bogged down in operations, on the one hand, or being too distant and passive on the other. This can be even more complicated when a family members who sits on the board of directors of the business is at the same time managing a business unit operationally.

The critical role of governance is to stay focused on the strategic level and to pay attention, for instance, to the positioning of the business in the market place, succession planning and leadership development. The proper delegation of authorities and responsibilities is critical in allowing operational people to get on with what needs to be done in the business on a day-to-day basis, without interference.