Corporate Governance in Family Businesses

by | Dec 11, 2017 | Law

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. Often, the misconception is that corporate governance is only for big companies. Any company at any level of size should practice corporate governance.

Having meet a fair number of entrepreneurs and business owners, it is disheartening to see the number of family owned businesses fail once the patriarch is no longer with the business. Without a proper system in place, family owned businesses will fail. The need for a proper system is not seen until the very end, when it is too late for anything to be done. Just recently, a business associate of mine shared the business culture of a very famous family owned business here in Malaysia, where decisions of the patriarch are often “interfered” by his children; and where senior management often refuse new ideas from new blood at the risk of them looking obsolete, resulting in new and good employees leaving the company.

Here are some very simple practices that a company can start doing to encourage good corporate governance:-

  • Delegating Authority

In a typical family owned business, the authority and decision maker is the patriarch. Even the most minute of decision will eventually be made by the patriarch. To start of your business in the practice of good corporate governance, the authority must be delegated. Whilst it is understandable that the patriarch wishes to keep most of the decision making, some, if not most of the smaller matters must be delegated and the patriarch must not interfere with the delegated decision making.

  • Developing clear Policies

Company policies must be written down and must be clear to everyone in the organisation. Not having a written policy is akin to moving the goal posts, changing at the whim and fancies of the patriarch. Of course, having it written down would do no good if it was not followed and practiced.

  • Ensuring Accountability

A lot of people could probably relate to this. How often have a subordinate be reprimanded for something his superior has done? How often have you been a victim of blame shifting? Accountability is the corner stone of a good working culture and of good corporate governance. Having a work culture that does not tolerate blame shifting would motivate more active employees and force more free-loading employees to work harder.

The key take away of corporate governance is that it should be suited to the company. Depending on the nature of the business; size of the company etc. However, there must be a practice of good corporate governance. The sooner family owned businesses realize this, the sooner the business can saved.

Share This