FROM THE KITCHEN TABLE TO THE BOARD TABLE: RELEVANCE OF CORPORATE GOVERNANCE TO FAMILY BUSINESSES

Family businesses play a significant role in business across Australia. Despite this, the ownership structure, controls, accountabilities, responsibilities and the effectiveness of meeting strategic goals and managing risks are often still not considered adequately. The understanding of these priorities, challenges and future plans unique to a family business are sometimes not dealt with soon enough. 

These issues can come to the fore when the business owners are forced to consider major transitions such as the sale of the business or succession planning. Whilst informal governance and ‘kitchen table meetings’ in some family businesses seem to work well, there is still a need to have a more formal structure to plan ahead for the business. In most cases, major undertakings and decisions are made as a family, with the head of the family taking the lead. But as the business grows, the need for a more formal framework is required so as to avoid overlap, confusion and possible disagreement. Embedding a corporate structure helps to provide for both the governance of the company and the deliberations of the family. Thus, to map the growth and continuity of family businesses and effectively help them manage day-to-day issues, a framework must be built along the lines of a corporate model.

WHAT IS CORPORATE GOVERNANCE?

Corporate governance can be defined as ‘the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in companies’1. Put simply, it is a corporate approach to working things out in a company. Family businesses need constant communication, a transparent plan and a clear line of authority. This helps to alleviate any problems within the family firm due to emotions and confusion caused by the lack of it. Whilst most family firms recognise that governance structures are vital elements of their businesses, only a few manage to embed corporate governance into their systems and business structure.

WHY DO WE NEED BOARDS?

In the working paper by D. Jaffe and S. Davis, The Independent Family Board2, they described the board of a family business as the one “responsible for adding value to the business in three ways: • Overseeing the leadership, operations and finances; • Providing strategic direction by anticipating the need for change and identifying new opportunities; • Mediating between the needs of family shareholders and the business.” The need for a governing board for family businesses is essential. Members of the board include owners/shareholders, executive directors (employees) and non-executive directors (non-employees), and they are bound to act in good faith, care and due diligence as they are appointed to look after the interests of the organisation and its people.

WHAT IS PARTICULAR ABOUT CORPORATE GOVERNANCE FOR FAMILY BUSINESSES?

Good governance is a must for every business. For family businesses, corporate governance is a crucial paradigm shift, so significant, that it determines the continuity or growth of any family firm. Its main goal is to give direction for families in the business as they embark on the next stage of development of their businesses, and its consequences on the family and the business as a whole. Certain challenges unique to family businesses – such as business succession and exit planning – can be critical to the success of the business.  To address family business issues, the governing boards serve as a working resource to lay down sound decisions on strategy, accountability, succession and responsibility. A certain level of reflective capability, expertise, knowledge and power to bind the family and the business, especially during difficult times, is needed to empower them to make the best business decisions.Indeed, family businesses maintain a key role in Australia’s business community. Ensuring their continuity by bringing matters to the corporate table has great potential to build not only stronger businesses, but also stronger families as well.


REFERENCES: 1 CORPORATE GOVERNANCE OF PRIVATE COMPANIES, A PRESENTATION BY GREG GUNTHER FOR THE FITZPATRICKS’ ADVISER CONFERENCE, 2011 2 THE INDEPENDENT FAMILY BOARD, A WORKING PAPER BY DENNIS T. JAFFE AND SAM DAVIS, RELATIVE SOLUTIONS

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