Governance & Family Owned Business

For the family-owned business, good governance makes all the difference. Family firms with effective governance practices are more likely to carry out strategic and succession planning. On average, they grow faster and live longer. Professor John L Ward, cited in Sir Adrian Cadbury, Family Firms and Their Governance, has outlined the following characteristics for family owned firms:
Importance:

They account for 95% of registered companies in India, Latin America, East Asia and the Middle East.
Distinctiveness:

Family relationships have to be managed in addition to business relationships.
Special requirements to manage growth:
a) Picking and promoting the right members of the family;
b) Providing attractive opportunities to managers from outside the family;
c) Demonstrable even-handedness in training, promoting, compensation and benefits.
Formal structure:

If family firms are to manage growth successfully, they have to adopt a clear organizational structure which would include:
a) An effective board concentrating on policy and strategy (outside directors are useful in asking the right questions)

b) A logical management with clear lines of authority and responsibility.
Keys to Success:
a) A clear and understood structure separating governance of the firm and affairs of the family;
b) An effective board with competent, independent, outside directors;
c) Logical structure of the firm with clear chain of command and decision-making process;
d) Recruitment, promotion and compensation policies must be written and respected.