Using an authority matrix to navigate decision-making in family enterprises

Family enterprises comprise a unique blend of deeply intertwined personal and business relationships - a combination that presents distinctive challenges for governance and decision-making.

They often benefit from strong bonds of trust, shared values, and a long-term vision that may span generations. However, family enterprises can also face significant challenges, such as conflicts of interest, emotional decision-making, and succession issues. Multi-generational family enterprises are often steeped in tradition, with a strong sense of legacy and continuity. While this can be a source of strength, it can also lead to resistance to change.

Effective decision-making and governance are crucial in navigating these complexities and balancing the preservation of core values with the need for innovation and adaptation in a rapidly changing business environment.

A structured decision-making framework establishes clear roles and responsibilities, sets up formal communication channels, and ensures that decisions are made based on data and analysis rather than personal preferences, emotions, favouritism, or short-term gains. This helps minimise conflicts and ensures the family enterprise remains focused on its strategic goals.

Below, we discuss the elements of good governance and decision-making in family enterprises and why you should consider using an authority matrix to clearly define roles and responsibilities.

What does good family enterprise governance look like?

Good governance in a family enterprise is about more than legal compliance and formalities. It helps ensure accountability, transparency, and fairness in how the family business and/or family office operates. An effective governance framework balances the interests of the enterprise and the family, ensuring both can thrive.

Depending on the size and complexity of the enterprise, this framework may include a board of directors, an advisory board and/or a family council. Independent directors and advisers play a crucial role in providing diverse and objective oversight and guidance, helping to prevent the family enterprise from becoming insular or resistant to change.

It’s also critical for the framework to include clearly defined policies on key issues such as succession planning, conflict resolution, and ownership rights. Establishing clear processes, fostering open communication, and ensuring that decisions are made in the best interest of both the enterprise and the family helps ensure the enterprise's resilience, sustainability, and competitiveness, providing the best chance of long-term success for future generations.

The role of an authority matrix in good governance and decision-making

An authority matrix is one tool that can be used to clarify governance processes, by defining the decision-making authority and consultative processes at various levels of the family enterprise. In essence, an authority matrix captures which decisions individuals, or groups of people, are trusted to make. It typically assigns specific levels of authority based on factors such as the nature of the decision and its impact on the family enterprise.

If the family enterprise includes an operating business, the authority matrix can also specify the roles and responsibilities of family members versus non-family executives or personnel. This is crucial for balancing the preservation of family values with professional management practices.

Much like drafting a Family Charter, which is one of the most important governance documents in a family enterprise, the process of creating an authority matrix can be equally as, if not more, valuable than the document itself. It invites open discussion, healthy debate, and—ultimately—agreement on the best approach.

The benefits of adopting an authority matrix

The benefits of adopting an authority matrix as part of the family enterprise governance framework are numerous. They include but are not limited to, the following.

• Clarifying roles and responsibilities: Family enterprises often involve a blend of family members and non-family executives, employees, and advisers. An authority matrix helps clarify who is responsible for what decisions, reducing the potential for conflicts. Specifying the levels of authority prevents situations where family members might feel entitled to make decisions that they are not formally empowered to make.
• Ensuring accountability: An authority matrix creates a clear chain of command, holding individuals accountable for their decisions. This can be particularly beneficial in family enterprises, where informal decision-making can otherwise be an issue.
• Facilitating succession planning: Succession planning is one of the most challenging aspects of managing any family enterprise. It involves identifying potential successors, providing them with the necessary training and experience, and ensuring that there is broad agreement within the family on the chosen path. An authority matrix can facilitate the gradual shifting of decision-making responsibilities to the next generation, ensuring a smoother and more structured transition.
• Preventing conflicts: Family enterprises are often prone to conflicts, particularly when multiple family members are involved in management and operations. This is especially true (and more challenging) when multiple generations and their families are involved. An authority matrix can help mitigate these disputes by ensuring everyone understands their role and the extent of their authority.
• Supporting professional management: Many family enterprises bring in professional managers to help the business run more efficiently. An authority matrix can provide these managers with a clear understanding of their decision-making power while setting the boundaries of family influence to maintain a balance between professional management and family control.

The five key steps to establishing an authority matrix

1. Assess the current governance structure: Review the existing governance structure to identify areas where decision-making authority is unclear or overlapping.
2. Define key decision areas: Identify the key areas where decisions need to be made, such as financial approvals, strategic planning, and operational management.
3. Assign levels of authority: Decision-making authority should be assigned based on factors such as the decision's significance, its impact on the enterprise, and the expertise of the individuals involved.
4. Workshop and discussion: This step is crucial to ensure that all family members and key stakeholders understand the authority matrix and their designated/allocated level of authority, role and responsibilities.
5. Review and adapt: The authority matrix should be reviewed regularly and adjusted as needed to ensure it remains relevant as the family enterprise evolves.

Authority matrix: An example

We've prepared the following example to illustrate what a simple authority matrix for a family enterprise may look like. A matrix will generally be far more complex, with 50 or more decision categories, multiple authority levels and as many stakeholders or authorised individuals as required.

Example decisions	Family Council/Owner	Board of Directors	Advisory Board/Advisers	Management
Discussions on succession and wills	X		O
Develop strategic plan for the business	O	X		X
Family wealth management and investment	X		O
Assess family members being on the Board	X	X	O
Review and assess buy/sell business decisions	O	X	O
Internal processes and controls			O	X
Hire and assess performance of senior management/executive	O	X

Key to authority levels:
X = Decide
O = Recommend

A thriving family enterprise - how BDO can help

An authority matrix is not just a governance tool - it is a critical framework that supports sustainable growth, clear decision-making, and harmony among stakeholders. By clearly defining who has the power to make which decisions, families can better navigate the complexities of blending family ties with business, financial or social goals, ultimately leading to a more resilient and well-managed family enterprise.

If your family business or family office is grappling with governance or decision-making issues, our team of specialist advisers can help. Contact us to discuss how we can help your family enterprise thrive across generations.