Nobel Mantrich                                                                                                                 Putting Strategy To Work  
   Home                                  |   Site Map                   |    Global Emerging Giants Network (GEGN)                                               

        

    Start  |  Knowledge  |  How we work  |  Services       References      |     Need help     |    About GEGN

ž

State-of-the-Art Thinking - The GEGN Knowledge Area

ž

Corporate Governance Knowledge Area

 

Instituting Corporate Governance in Emerging Giants and Diversified Family Business Groups

Establishing a clear, shared understanding of the separate functions of the ownership, board, and management is vital to effective corporate governance in diversified family business groups of companies - all the more so because family members often wear multiple hats, functioning as owners, directors, and managers.

While the direct involvement of the family on multiple levels complicates the system, it also provides an important link between the different areas of governance. This built-in link, combined with a positive development of family ties and relationships, can fundamentally change the dynamic of trust that pervades the governance system. A well-functioning system helps build trust within the family, and a good family dynamic, in turn, becomes an asset to the business because it enables each separate piece of governance to function better and add more value while remaining aligned with the other components of the governance system.

The extent to which trust is cultivated directly between the controlling owners and the non-family management will determine how formal governance practice becomes and whether the family can continue to create effective agency in governance.

Many prominent family business groups face five special challenges which have to be addressed not only from the Family Governance side but also from the Corporate Governance side. These are:

1. Succession: Due to the diversified nature of many family business groups and the quantity and variety of business units that they own, it can become increasingly difficult to find next generation family members who are sufficiently able and well trained, and at the same time willing and sufficiently patient to take over the leadership of the numerous business units which such large groups possess at a time that is suitable to the current generation. Careful planning for succession even from the Corporate Governance side will prove valuable.

2. Diverging interests: It is common for family considerations to diverge from company interests particularly as future generations move in. As future generations take over dilution of family loyalty takes place as second and third cousins become the norm. At that point there is no place for incompetent family members and no place for compromising family loyalty with bad performance. It is prudent to identify possible points of divergence and to deal with them before they become damaging. If implemented correctly, Corporate Governance will help to improve transparency, create clearer performance parameters, reduce conflicts of interest and improve objectiveness in decision making.

3. Non-family executives: The growing importance of specialist skills requires the recruitment of non-family executives who frequently are reluctant to be subordinate to less competent family members. Well thought out and credible personnel policies are important. As family loyalty dilutes and non-family executives become more prevalent in the management of business units, Corporate Governance will ensure the right checks and balances between ownership and management.

4. Narrow perspectives: In a fast changing competitive environment it is valuable to introduce broad outside and objective perspectives into the decision making process for Family Business Groups. This sometimes tests the flexibility of family entrepreneurs. However, it enables top management to engage more in constructive conflict by offering informed but differing points of view. It also improves decision comprehensiveness by adding richness to discussions and gets owners to think outside the box. It also helps top family members to see the business from a neutral unbiased and balanced perspective which does not give advantage to any particular family member who has an intrinsic interest in the Group It also extends the family’s informal strategic networks.

5. Shortage of capital: Sometime it may prove difficult to provide sufficient capital to take advantage of technical, process or operational improvement without diluting family control. Careful financial planning is vital.

Prudent and early consideration of the appropriate governance structures and mechanisms will contribute substantially to the satisfactory resolution of these issues.

 

 

What are the Benefit of Corporate Governance to Emerging Giants and diversified Family Business Groups of Companies?

Instituting Corporate Governance  will:

1. Enhance overall Group performance, including profitability, preparing for further growth, and so helping to secure new business opportunities when they arise.

2. Gain better access to outside capital than other poorly governed peers. Being more attractive to local and foreign investors and lenders would enable faster growth and reduce vulnerability to financial crises. According to a recent global investor opinion survey, investors are ready to pay a premium of as much as 25% for companies exhibiting high governance standards.

3. Strengthen boards through appointment of more skilled independent directors or advisory boards.

4. Curb on techniques that protect failing management teams

5. Increase the Group's ability to identify and mitigate risks, manage crises and respond to changing market trends.

6. Command higher valuations,

---------------------------

In this Knowledge Area you will find a list of useful published knowledge and insights from GEGN about Corporate Governance with special references given to Family Businesses and Emerging Giants. You can browse through the material and choose knowledge according to your area of interest:

Free Download:

Contact us to become a Member of the Nobel Mantrich Global Emerging Giants Network.....

Knowledge Downloads for GEGN Members:

 

Other GEGN Knowledge Sources on this Site:

 

Other Ways of Acquiring Knowledge about Best Practice Emerging Giants and Family Business Groups:


Up | Down | Top | Bottom

        

 

Corporate Governance is not so much leadership over others, as it is leadership on behalf of others

 

Other GEGN Knowledge Sources on this Site:

Other Knowledge Sources on this Site

 

 Research        |   Consulting      |   Training                                                                                                                                           
 Terms of Use   |   Privacy Policy     |   Site Map        |  Help         |  Contact Us                                                                                                             © Copyright   Nobel Mantrich Ltd