The First Step is Good Governance

All the changes, shaping up, adaptations, improvements that need to happen in a family business or SME, need to rely on good governance to stand a chance of actually happening and being done right.

There are those who believe that in small businesses or in family business, governance can be formal or informal. The reasoning is that in circumstances where there is a strong family cohesion, a collectivist attitude and alignment of interests, governance
can be relational and informal.

I tend to disagree. Even in the most harmonious of situations there will always be conflict interests between the needs of the business and personal needs & priorities. Moreover informal governance does not create a system of checks and balances making sure that all is above board and as it should be.

One of the main advantages of a formal corporate governance structure is that having the policies and structures in place allows businesses to have these tools to better face any crisis, rather than basing oneself on decisions that are made in the heat of the moment. After all, we all know that the formalisation of governance tends to occur in waves, often triggered by events or changes in ownership or management.

Experience clearly indicates that when family businesses move beyond the stage of being owned and managed by its founder/s, this is when the need of formal governance is mostly felt. It is here that the clarity of roles, which relates particularly to
the relationship between business and family and the intertwining of family and business objectives and needs, is so badly needed, whereby all family members, be they executives, owners or an incoming generation, should be clear about their role in the family business. Formal governance structures and processes allow such roles to be clearly defined. A formal governance mindset also allows businesses to have a logical organisational structure which is clearly aligned to its purpose, with clear chains of command and decision-making processes, that would also avoid unnecessary arguments & conflicts within the family about fairness and responsibilities

Moreover a family business needs to have an effective board of directors, made up of competent persons and with an element of independence. A common mistake is that family businesses either have board of directors made up of family members without proper importance to the competence of such directors or else they do appoint external directors to provide objectivity, but appoint such external directors in their own image or among a close group of trusted family friends, hence defeating the purpose of having true objectivity.

In a recent research done by the Family Business Committee within the Malta Chamber and the Family Business Office, we have asked more than 100 different family businesses, if they have a functioning board of directors that meets regularly to discuss the present performance and future direction of the family business. A substantial chunk said NO. When these where asked how they do get about taking strategic decisions about the future direction of their business, some of the replies where by talking matters as and when they arise and as necessary” or “Company has one director and he makes the decisions after management puts forward proposals” or “A meeting is only held when important decisions need to be taken” or “I take decisions for my business

This survey also gave us insights as how priorities change between those family businesses that have a functioning board of directors versus those that do not. However to know more about such priorities and how such priorities give a true understanding of which family business are best poised to face successfully the present and future challenges, you need to attend the event (see below) being organised by the Family Business Committee of the Malta Chamber on the 1st February at 9am.

Click HERE to register

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