Why Traditional Governance needs Emotional Governance — Behavioral Risk Management — to be effective.
Until Emotional Governance, families are not aware of how they do or can impact the family business. Governance limits itself by not offering Emotional Governance as value-added to their clients.
When looking at the three-circle model of family business, the common denominator in each of the circles, regardless of roles, is the human being. And these human beings have these things called feelings. When triggered these feelings will show up, at times negatively impacting the family dynamics, the day-to-day business decision making, and the long-term ownership decisions.
We believe the biggest risk any family business will face is behavioural risk of the family members. Behavioral risk is any negative behavior of the human beings and its impact on the family system. Left unchecked, behavioral risk will ultimately destroy the family wealth and relationships. Family unease when repaired, will improve the bottom line and ensure longevity. Until these behavioral risks can be identified and rectified, traditional governance will not be as effective and efficient as it could be.
Friction between family members (behavioural risk) is not addressed in ‘traditional’ governance. Instead, conversations that need to happen go unsaid and undealt with for years. Emotional governance creates a framework for these conversations to happen, in a safe environment based on the guiding principles agreed to by the family themselves.
Traditional governance is in place to “govern” the human beings within the business. Yet most traditional governance does not address the emotional issues that arise in family business. It’s like the rules we have in society, yet few follow or obey. We all know to keep a certain speed limit or to NOT use our phones while driving, yet many of us continue with our poor behaviour and don’t follow the rules, which are in place to govern us and keep us safe.
Emotional Governance is necessary for Legal and Traditional Governance to work—because it’s purpose is to manage the emotional issues that will arise between the family members and thus manage and improve their behaviour risk. Once Emotional Governance is in place the family members feel safe with each other because they have collaborated through co-creating these agreed to set of behaviors, which they each implement with each other.
The process to create Emotional Governance for a family involves each of the participants’ starting to manage their own behavioral risk by applying “Governance in Action.” Suddenly, each individual is responsible and accountable for their behaviours and impact on others.
By agreeing to and embodying a set of guiding principles, along with rules and consequences for poor behaviors, the family has in place a tool to assist with the management of the behavioral risk of its family members. They feel safer because all the participants are on an equal playing field, each responsible and accountable to embodying and “living” the agreed-to guiding principles.
Emotional Governance plays a critical supportive role to Legal and Traditional Governance because it ensures the human beings will behave better with each other, allowing the process of governing a family to be effective and efficient.
Without Emotional Governance, every family runs the risk of their strained family dynamics costing the business impact, harmony, money, stability, and eventually its generational survival.
Offering a family the option to engage in the creation of their Emotional Governance is key to the long-term success and continuity of the family wealth and its relationships.