Change and Transformation in Family-Owned Businesses.

In this (long overdue!) update, I reflect on how family-owned businesses can navigate transformation - not only through legal tools, but also through open communication, good governance, and clarity on roles and expectations. 

When change arrives (and it always does), being informed makes all the difference.

The overarching theme of the past few months has been change. Change carries energy, and how we harness that energy is crucial. Does something seemingly negative always lead to a bad outcome? Not necessarily. Does something that appears to be the right move always lead to a positive result? Again, not always.

Family-owned businesses are constantly evolving. They experience generational transitions, each with its own challenges, navigate new economic and social landscapes, and face human rivalries and disagreements over direction. These are all indicators of change.

But, how can family businesses manage change meaningfully?

A key to avoiding uncertainty is information. Without knowledge, gaps are unfortunately filled by rumour and confusion. But what are the legal tools that can support transformation and mitigate against uncertainty?  Information sharing among family members can be helped by having the proper governance.

Having the right documents in place

Shareholder agreements, for example, are essential in establishing shareholder rights and regulating the power of directors. They can offer exit mechanisms, and control over who ownership can be passed to.

In the same vein, family charters and constitutions can be invaluable in establishing expectations.  Are there any key business decisions on which the family should be entitled to a say? Should the next generation be entitled to appoint the chairman of a board, or be a member of any family council?

Further, by establishing a board, long-term decision-making can be formalised. This helps with diffusing issues that can arise due to generational attitudes and approaches, and helps ease new generations into the role of being decision-makers. It can also help enable and empower non-founder family members.

It’s not just having the correct documents in place, but also the process of establishing good governance, which is just as important.

Employment contracts

Information sharing is also about the distribution of power. 

Friction can arise between family members working in the business and those who are not, with concerns around accountability related to both the business and to the wider family. Remuneration and payment can become grounds for conflict.

Employment contracts and executive-level agreements can be beneficial to the business by ensuring that disagreements over remuneration and effort can be addressed without bad feelings. Additionally, inter-generational conflicts can be avoided with transition arrangements for more senior roles within the organisation. All of these are tools to help deal with risk and to ensure that information is shared broadly between different generations and family members.

Beneficiaries (those who are shareholders, but not directors, or who are included in a family trust) may also be more generous with support and remuneration, where there is accountability.

Planning for a dispute

Disputes are often the most emotionally charged area of family business governance. Disputes can arise from misunderstandings, unmet expectations, or simply the stress of balancing family and business roles. The key is not to avoid conflict altogether (which is rarely possible) but to manage it constructively.

Mediation can be a powerful tool in this situation. It offers a confidential, non-adversarial space for family members to express concerns and work toward mutually acceptable solutions. Having a pre-agreed dispute resolution mechanism - whether through mediation, arbitration, or a family council - can prevent disagreements from escalating into damaging rifts.

Family businesses, with their long-term perspective, are uniquely positioned to turn change into opportunity. Having access to information, transparency, and good governance are all paramount to ensuring long-term success.