Corporate Governance: Best Practices for Family Businesses

 

The Importance of Family Businesses in the Economy

Family businesses represent more than 70% of the business community in Portugal and are responsible for approximately 60% of private employment. Globally, it is estimated that they contribute more than 50% of global GDP.
Despite their importance, longevity is a critical challenge: only 30% of these companies survive the second generation and less than 10% to the third. The reason is often linked to the lack of governance structures that prepare the organization for growth and sustainable internal conflicts.

Why invest in corporate governance?

Unlike listed companies, which have strict oversight rules, family businesses can adopt more flexible structures. However, the lack of clear rules makes them vulnerable to:

• Conflicts between partners and heirs.
• Management decisions based on emotional ties rather than objective performance and productivity criteria.
• Lack of succession planning.
• Difficulty attracting external investors and strategic partners.

Corporate Governance acts as a protective shield, ensuring that the family legacy becomes a competitive and lasting business project.

Essential Practices for Family Businesses

1. Separation between family and business roles

Create a "family protocol" that defines boundaries between personal and professional matters. Avoid mixing emotional conflicts with strategic decisions.

2. Independent governance bodies

Create boards of directors or advisory boards with external members.
Ensure that decisions are made impartially and professionally.

3. Structured succession planning

Define objective criteria (skills, experience, merit) for those who assume leadership roles.
Prepare younger generations with training and gradual monitoring.

4. Policies for the entry and exit of family members

Establish clear rules for who can and cannot join the company.
Avoid favoritism and preserve meritocracy.

5. Transparent dividend and remuneration management

Strike a balance between reinvestment in the business and financial returns for partners. Transparent rules prevent resentment and strengthen trust.

6. Culture of compliance and ethics

Implement codes of conduct applicable to all employees, whether family members or not. Adopt anti-corruption policies, prevent conflicts of interest, and ensure regular reporting.

7. Long-term strategic vision

Think beyond the current generation, with investment, diversification, and innovation plans. Reinforce the company's role as a guardian of family values, but also as a driver of competitiveness.

Practical Examples

Case 1 - Conflict between sibling partners: Two heirs with different views on international expansion. Without an independent board, the decision drags on, harming competitiveness.

Case 2 – Improvised succession: The founder suddenly falls ill, and the company passes to an unprepared son. The result is a loss of customers and difficulty retaining talent.

Case 3 – Growth with external investors: A family business that implements clear governance rules can raise private capital, expanding with confidence and maintaining its identity.

Tangible benefits

✔️. Greater confidence from investors, banks and strategic partners

✔️ Reduction in internal conflicts and increased family cohesion

✔️ Greater resilience in the face of crises and unexpected successions

✔️ Long-term projection that ensures legacy continuity

Conclusion: Governing to Grow

Corporate Governance should not be seen as a bureaucratic imposition, but as a business strategy tool.
In a family business, it means moving from a logic of survival to one of sustainable growth, ensuring that family values are preserved, while ensuring that decisions are based on criteria of professionalism, transparency, and innovation.

At Beyond Legal, we support family businesses in creating adapted governance structures, balancing tradition and modernity, so that legacy becomes a true competitive advantage.