Engaged Ownership

Chapter 5The Legacy of the Past: Natural Governance, Family History, and Culture

Natural Governance

The natural governance system might be called “how we do things around here,” and it is one of the hallmarks of family businesses.

It would be a mistake to think that a family business without a formal, written governance system has no governance. All the groups in the family business system—family, owners, board, management—aspire to a state of equilibrium. Everyone wants to be free to attend to his or her needs, wishes, interests, and responsibilities, whatever they may be, without stepping on others' toes. To keep this equilibrium, many family businesses from their first days evolve a form of “natural governance” that is largely based on assumptions, expectations, and understandings, rather than the tangible structures and policies of a formal decision-making system. This natural governance system might be called “how we do things around here,” and it is one of the hallmarks of family businesses.

Natural governance is particularly apparent when a family business is run by a controlling owner: an owner who owns a majority of the voting power and who also manages the business. This is because the controlling owner is at the center of all decision making and occupies all the main roles in the business—owner, director, manager, family member. Those around him just know the types of behavior or actions that will meet with his approval or disapproval. Furthermore, there is often ...