Due to the fact that family businesses are controlled by both family members and non-family executives, they can face special governance issues. Due to the interaction between family dynamics and business dynamics, family firms need a unique approach to governance that is distinct from that of non-family businesses. In family enterprises, governance often focuses on creating a system of rules and regulations that facilitate successful communication between the family and the firm. This entails outlining the responsibilities and tasks of family members within the company, setting up transparent communication lines, and making sure that a formal, fair, and transparent decision-making process is in place.
The potential for conflicts of interest is one of the major issues with governance in family enterprises. Family members and non-family executives may have different interests or goals, which can cause conflict over how the company should be operated. Family enterprises must create a clear governance structure that spells out the decision-making procedure and develops means for resolving conflicts in order to overcome this obstacle. This entails forming a family council to enable communication and decision-making among family members, assembling a board of directors made up of both family and non-family members, and implementing explicit policies and processes for compensation, succession planning, and other crucial areas.