Did you know that only 30% of family businesses survive into the second generation, and just 12% make it to the third[1]? One of the key reasons for this sobering statistic is not a lack of vision, passion, or capability—it’s a lack of clear governance structures that balance family dynamics with business performance.
Governance isn’t just for big corporates
While many family businesses focus on day-to-day operations and family succession planning, far fewer give enough attention to how the business is governed. That’s understandable—family business owners often wear many hats, and governance can feel like an abstract or overly formal concept.
But for many family businesses, without effective governance, decision-making can become reactive, accountability can be murky, and tensions between family and business priorities can go unresolved.
Having more formal business governance structures and processes in place can also be key for succession planning – whether it’s to the next generation of the family, or with a view to other strategic options for the business such as sale, IPO, management buy-out or merger.
As a first step, this is where the distinction between corporate governance and family governance becomes vital.
In short, family governance focuses on how the family interacts with and influences the business, while corporate business governance ensures the business is strategically directed, well-managed, and accountable.
Benefits of good business governance in family companies
From our experience working with many family businesses across a range of industries, putting in place good governance structures and processes can bring many benefits. These structures might include:
- establishing an advisory or governing board
- holding regular ‘board’ meetings which focus on strategic direction and oversight rather than operational matters
- documenting clear delegations of authority from the shareholders to the board
- requiring performance reporting from within the business to the board and ultimately the family shareholders, and
- appointing a non-family CEO where the growth in the business warrants that move.
Enhanced business governance structures, especially where they involve bringing in independent board members, can have key benefits including:
- taking a business to its next level of growth by providing direction, leadership, and
ensuring appropriate control for the business - complementing management’s industry expertise with their business acumen and experience
- supporting the owners by introducing new skill sets and experience not present in the existing management team
- offering objectivity by removing some of the emotion from decision-making, which is especially important when hard decisions need to be made
- bringing fresh insights to constructively challenge the “usual way of doing business,”
and thus promoting innovation and improvement - enhancing the company’s reputation and standing with clients, financiers, and investors, and
- offering new networks, especially if the business is expanding into new product or
service areas or geographical markets.
Getting family business governance right: the Directors Australia approach
At Directors Australia, we’ve worked with many family businesses navigating leadership transitions and establishing ‘best fit’ governance structures and processes. Our experience shows that strong governance isn’t just protective—it’s proactive. It’s what enables family businesses to evolve across generations.
Some key questions we ask at the outset:
- Is there a clear family governance structure in place?
- Is your company ready for a transition to more formal business governance structures – both financially and emotionally?
- What will be the impact of loss of control and independence for the family?
- Is the timing right given other things going on in the business?
We assist family businesses by:
- designing tailored governance models—such as advisory boards or formal governing boards.
- drafting policies, board charters, and role descriptions to bring clarity and professionalism.
- recruiting independent Chairs or directors with not just the right skills, but the right personal attributes for a family business environment.
- advising on director remuneration and succession planning in line with family values and business goals.
Our strength lies in the combination of deep governance expertise and a nuanced understanding of family business dynamics. We also collaborate closely with other professionals, including family office advisors and legal counsel, to provide holistic support.
Take the next step in securing your legacy
If you’re a family business owner thinking about the future, consider how governance fits into your plan. Are your family values and business goals aligned? Is your board equipped to navigate both?
Directors Australia can help you create and embed governance practices that support both the business and the family behind it.
📩 Get in touch today at [email protected] or call 1300 890 267 to discuss how we can support your family business.
Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and not-for-profit organisations to achieve real, ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance.
As part of our service offering we regularly assist family businesses with business governance including the recruitment of advisory and governing board members.
[1] The Generational Decline: Why Success Becomes Harder with Each Generation in a Family Business 2024 and Infographic: The Family Business—Successes and Obstacles | SCORE
Brad Booth
Board Recruitment Specialist
