Adopting corporate governance measures at family and business levels provides good solutions to family ownership challenges, according to experts, who note that such measures are indispensable to the long-term successes of the family business.
Family-owned businesses face many challenges for their profitability. They also face a set of challenges they need to address to obtain the trust of investors and, in many cases, to make the company sustainable in the long run.
Studies show that family-owned businesses contribute largely to economic wealth creation in most country’s economies. The most conservative estimates being between 65 percent and 80 percent of which the proportion of all worldwide business enterprises that are owned or managed by families have increased, however they are often underestimated.
Analysts say that increasing growth and globalisation have brought many challenges for family businesses. They believe the way to deal with the issues could mean the difference between success and failure, noting that many of these challenges can be tackled by adopting sound corporate governance systems.
‘‘Good governance practices make all the difference for a family-owned company. Family firms with effective governance policies, procedures and practices are more likely to carry out effective strategic and succession planning,’’ an entrepreneurship specialist, who pleads anonymity, tells BusinessDay.
‘‘Most start-up businesses are started informally, often based on the know-how of the founder, with employees as family members who have no sense of delegation and authority. However, if the founders wish the business to grow and outlive them, corporate governance must be imbibed,’’ Angela Ihunweze, business plan expert/CEO, Angela Itambo Company, writes in a note to BusinessDay.
The expert notes that corporate governance has been accepted globally as a system of law and sound approaches by which corporations are directed and controlled, focusing on the internal and external structures with the intention of monitoring the actions of management and directors, so as to mitigate agency risks that may stem from the misdeeds of corporate officers.
Corporate governance measures that family businesses can adopt will vary, depending on the stage of the controlling family’s ownership, according to an Organisation for Economic Cooperation and Development (OECD) Report on Family Business Challenges. The report notes that some structures and processes are adapted to situations in which there is a single person, the founder/patriarch of the company, in charge of the company, adding that other solutions are better suited when the next generation takes over the business.
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