Corporate Governance - Does it matter to me?
28 October 2016
A company fails and questions are quickly asked about what could have been done better and differently. Often lack of corporate governance is cited as a key contributory factor towards the demise of a business and, in fact, the UK government will shortly assess how corporate governance measures can be improved in the private business space.
Lack of checks and balances, lack of experience on the board, and insufficient use of non-executives, are some of the examples that are often given in the public domain when describing issues around corporate governance. But how true and relevant is this within the family business space, where businesses can run for multiple generations?
If you consider, as an example, a family business that is still owned and managed by the founder, then what could be cited as the reason for the failure of such a business and how could good governance play a role?
Typical reasons for failure within such a business could include - lack of succession planning and lack of challenge around decision making in respect of the founder. Apply some best practice corporate governance measures, cited in documents such as the UK Corporate Governance Code, and you begin to more easily see how such challenges can be addressed - creation of a board staffed by professional and experienced external directors; separation between board and management; attracting strong external management; and developing clear succession plans.
Add onto that some best practice family governance measures such as next generation training, which enables the family to deal with life after the founder and use of family constitutions, which sets out the rules of engagement between the family members, and it becomes clear that governance measures at both levels can enable a business to not only succeed but thrive.
In essence, good governance is about:
- Creating a framework that enables the business to deal with risk;
- Enables leaders to be clear on the business’s purposes and values and how they are acted upon; and
- Enables people in the business to demonstrate the right behaviours and decisions in the moments that matter.
When trying to decide on how to implement better governance, family businesses will invariably focus on these three areas at both the level of the family and the business. If you take the above example of an owner managed business and think through each of these three elements then you can see that:
- The clear risk in the example is over reliance on the owner;
- There is a need to be clear on the purpose and values of the business she/he has created, so that it can be successfully owned and managed by the family and key executives, particularly after they have stepped down; and
- The family need a clear and agreed framework in place to deal with this succession risk and which enables them to act in the right way and make the right decisions.
The UK Government are in the process of assessing corporate governance guidelines for private companies and the family business sector should be well positioned to help explain the value and meaning of good governance. In fact, some of the governance measures used by families, could actually have wider applicability within the private business space, when considering the role and input of key employees and stakeholders.
For more on corporate governance in the boardroom click here.
To discuss the themes explored in this blog or your family business needs with one of the team, please get in touch.
Contact me: Tel: +44 (0)20 7804 2504
Follow me on Twitter: @StirzakerR