Navigating generational transitions in family businesses through effective governance

Family-owned businesses play a crucial role in driving economic growth in Canada and globally. Recent research by EY revealed that these enterprises have been expanding at a rate nearly double that of advanced economies and about one and a half times faster than emerging market economies. However, they encounter common challenges as new generations join the ownership and decision-making ranks alongside the founders.
 

Navigating these shifts can be complex, especially in maintaining harmony and alignment during transitions, whether prompted by retirement or, additionally, unforeseen circumstances. At such pivotal moments, family members often seek clarity on transition plans for both the business and collective family wealth, as well as on long-term business strategies and family dynamics.
 

Establishing the right governance structure can help family enterprises avoid these challenges. However, many entrepreneurs, consumed with building their business and making decisions, may overlook the necessity of governance, perceiving it as additional complexity. Some may delay involving the next generation until they have completed their education or entered the business workforce, fearing unpreparedness for potential questions or concerns that could arise.
 

Conversely, forward-thinking families regard governance as an ongoing process vital for preserving family wealth and well-being, engaging successive generations, and providing a framework for effective enterprise and family management. Embracing the benefits of governance requires viewing it as an active, evolving process requiring time and effort to implement, with flexibility to adapt to changing family and business needs over time.
 

It’s never too late to embrace governance structures that strengthen operations and support successful generational transitions. The sooner this approach is embraced, the better for the business and the family.
 

To support your family businesses in having better conversations around establishing a formal governance structure, we’ve summarized three key considerations in our latest report.