Business Management

Governance: how to provide structure for growing family businesses

A system of shared rules within family businesses helps to manage complexity, plan for succession and improve financial performance, whilst preventing conflicts and crises

by Luca Brambilla* and Josip Kotlar**

24 September 2026

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4' min read

Translated by AI

Versione italiana

4' min read

Translated by AI

Versione italiana

“Governance”. A term that is appearing more and more frequently in the vocabulary of entrepreneurs, yet whose full meaning is often overlooked. Let us therefore try to examine this concept in depth and understand its potential.

Governance refers to that system of rules governing the company’s current and future decision-making. The need to establish a structure is particularly relevant to family-run businesses in the growth phase, where the business dimension is often intertwined with the socio-emotional dimension and the need to manage increasing complexity arises. This means building a framework that addresses questions such as “who makes the decisions now?”, “who will make the decisions in the future?”, and “what criteria will govern the transition from those in charge today to those who will be in charge tomorrow?”.

For many Italian family-run businesses, these questions remain unanswered: centralised leadership models and older leaders still prevail. But in the most robust businesses, the opposite is true: of the 117 companies nominated for the ‘Ambasciatori d’Impresa’ award in 2025, 58 have planned for the inclusion of young people on family boards, 29 have established rules for joining the business, 26 have launched entrepreneurial training programmes, and 23 periodically review agreements on ownership, shareholding and succession. Research by the Politecnico di Milano confirms this finding: among the 100 most innovative family-owned SMEs, selected from over 6,300 companies, good governance is associated with superior results, with a median operating margin of 10.6 per cent compared with 6.9 per cent for the sample as a whole; conversely, over 70 per cent of liquidity crises can be attributed to issues relating to succession, governance and family relationships.

Ownership, management, family

The three-circle model developed by R. Tagiuri and J. Davis (Harvard Business School) identifies three coexisting areas within every company: ownership, management and the family.

Each dimension has its own requirements, stakeholders and rules which must be managed using appropriate tools.

There may be people who belong to just one of these roles, two, or even all three: there are those who are shareholders, but also managers, and also fathers. An which, if poorly managed, risks leading to confusion. Take, for example, the female entrepreneur who takes her son on, assessing him with ‘a mother’s heart’ rather than ‘a manager’s mind’. Governance brings order by establishing clear criteria for each aspect. In this way, the businesswoman can reprimand her son within the company for failing to meet a KPI whilst, at the same time, setting aside a private moment to offer him emotional support.

Family life must not be sacrificed for the sake of business, but nurtured and valued in order to strengthen it. Affection should not be suppressed but channelled: in this way, it can become a factor of cohesion and engagement.

From theory to practice

How is governance defined in practice? It starts with the vision, setting out how ownership, management and the family will evolve in the long term. Clear procedures must then be established for the training, recruitment, induction and development of family members within the company.

It is essential to provide a structured career path: joining the company does not automatically mean leading it. Clarity regarding the process and the entry and career requirements makes it possible to ‘objectify the subjective’, ensuring that recruitment procedures, performance appraisals and promotions are as neutral as possible.

Planning for new appointments is just as crucial as planning for departures. AIDAF data show that the average age of outgoing leaders is 75. And when the handover is not planned but occurs naturally, it often happens abruptly and without adequate preparation. The popular saying “prevention is better than cure” is particularly apt in this regard. In other words: it is better to draw up an exit plan in advance than to have to deal with an unexpected crisis.

It is worth noting that the transfer of power does not necessarily coincide with the leader’s departure; on the contrary, the leader may become a mentor to the younger generation, even without retaining direct operational responsibilities. Thus, those taking the helm can benefit from the experience and wisdom of their more ‘senior’ counterparts, who are often able to identify risks and opportunities that are less obvious to those involved in day-to-day management.

Clarity that prevents conflicts

There is no need to define overly engineered processes: a few high-level, widely shared principles are sufficient. We need to be strict in our values but flexible in how we put them into practice. The mantra to bear in mind is “better imperfect but explicit rules than perfect but implicit ones”.

There are no universal rules; what matters is that everyone is on the same page. Some companies require new entrants to have a minimum number of years’ experience elsewhere; others only allow entry if the role for which one is applying is genuinely vacant and in line with the person’s actual skills; still others choose to have a board of directors comprising both family members and external individuals. This article does not presume to list the best rules, but rather aims to convey the importance of having rules.

A 2019 study by the William Group analysed the main causes of failure in generational transitions: shortcomings in governance account for 60 per cent, communication issues (inadequate information sharing, undisclosed expectations and unaddressed emotional dynamics) account for 25 per cent, whilst structural shortcomings in tax and legal matters account for only 15 per cent.

The figures speak for themselves: governance is a investment in business continuity. This is because agreeing on pre-established rules reduces ambiguity, thereby preventing the emergence of those relational conflicts that threaten to erode the value that entrepreneurs and families have spent decades building up.

*Director of the Academy of Strategic Communication

**Josip Kotlar, Full Professor of Strategic Innovation at the School of Management, Politecnico di Milano