Overview
Family-owned businesses are the backbone of our economy, yet the governance around them often moves slower than the business itself — decision-making mechanisms that started as an informal understandings between siblings or cousins, were never quite revisited as the family and the business grew.
Two publications help explain what effective family enterprise governance looks like, and why it's worth the effort of building it deliberately rather than leaving it to chance.
The first is A Primer on Governance of the Family Enterprise, a 2013 World Economic Forum (WEF) report synthesizing decades of academic literature on how family enterprises are governed and why governance affects performance.
The second is the Family Enterprise Governance Report 2025, a joint publication of UBS Family Office Solutions and Agreus, based on a global survey of 106 participants representing family enterprises with an average family net worth of $2.4 billion.
Governance Starts With Fairness
Long before a family adopts formal documents, its governance rests on shared values and culture. The WEF report highlights research describing a family member's perception of fairness in outcomes, in decision-making processes, and in how people are treated, as a main driver of family satisfaction and a key deterrent of family conflict.
As families grow into a second or third generation, or beyond, more formal structures typically emerge. Chief among them is the family constitution, which the WEF report describes as a morally binding document covering the family's mission, values, and history, along with its rules for decision-making, conflict management, succession, and its policies on employment, liquidity, and exit from the business.
Turning to the operating business itself, the WEF report identifies six areas where family firms make deliberate governance choices: ownership structure, control mechanisms, the board of directors, executive compensation, dividend policy, and succession.
In Manitoba, while family constitutions are certainly used, what’s most common to see is a highly customized shareholders’ agreement, which may incorporate some value-driven aspects common to family constitutions. Shareholders’ agreements are legally binding agreements that cover a broad array of governance, succession, and operational matters. It’s best to put a shareholders’ agreement in place as early as possible in a business's lifecycle and revisit it over time.
Preparing or updating these agreements (be it a constitution or shareholders’ agreement) for large, complex family enterprises is no small feat. They require significant consultation with family members. Everyone’s perspective must be heard. Hard decisions have to be made. Businesses may need to be restructured. It takes time, patience, and focus. It is imperative that family enterprises look to their trusted advisors, and particularly their legal counsel, to move the family through the process to completion.
Governance Increases Financial Performance
The WEF report's review of the performance data found that families that adopt formal governance practices saw measurably better financial performance in their businesses than those that don’t.
More than a decade later, the 2025 survey reaches a similar conclusion. The survey attributes performance gains to families who build out governance across multiple fronts, sustain governance year after year, and adjust governance processes as circumstances change. They treat governance as an ongoing shared responsibility rather than a one-time project.
Governance Prepares for Succession
Similarly, difficult discussions need to happen, and decisions need to be made, about how the next generation will own and operate the business. Will spouses who “married-in” inherit shares? Just their kids? Will family trusts be established? How will decisions be made? Will children who aren’t active in the business get shares? Votes? If not, will they be equalized through inheritance? What does equalization mean? Who will operate the business?
No two families are the same. Each family needs bespoke, custom legal advice to come to family-appropriate solutions. In the end, what the family decides will be recorded in the shareholders’ agreement or other documentation.
As to the next generation operator, the WEF report highlights the benefit of keeping business leadership “in the family,” since family businesses tend to run on specialized, hard-to-transfer knowledge. That said, the same research finds that firms led by a founder tend to outperform, while those led by a descendant tend to underperform. This makes thorough preparation of the next generation, not just their selection, a real driver of a successful transition. The goal is to have the descendant be as prepared to run the business as the founder.
The 2025 survey reinforces this: families that actively engage in succession planning reported four times the level of next-generation preparedness compared to those that don't.
The Takeaway
The research confirms that deliberate governance, built early and revisited often, supports both family harmony and business performance.
In fact, the 2025 survey found that families that have adopted these governance practices (constitution/agreement) reported twice the effectiveness in family communications compared to those that have not. The same survey also found that families that hold regular, non-financial family meetings, i.e. gatherings focused on relationships rather than money, were also twice as effective at communicating.
Fillmore Riley LLP's Business, Private Client and Taxation Practices
Our Business, Private Client and Taxation groups regularly help families running family businesses determine their governance intentions, and then turn them into binding structures, including shareholder agreements, trusts, and succession plans built to hold up over generations.