Summary Business Governance

Chapter 1 - Introduction

A business that is well governed is free to work towards the highest and best objectives of the business-
maximizing profit, improving strategy, creating jobs, fostering employee development, and serving all
stakeholders, including shareholders, employees, customers and suppliers.

Chapter 2 – The Importance of Thoughtful and Effective Governance

How to prevent conflicts in family business?

First, effective governance requires accountability between shareholders and the business (family
meetings will help achieve this).

Second, effective governance requires setting family policies that would have prevented the seemingly
arbitrary decisions that someone in the family would think its damaging. Policies and procedures, once
accepted and understood, provide for shared expectations and a sense of consistency and fairness.

(Effective governance can be defined as creating processes that make revolution unnecessary).
Chapter 3 – The Differing Roles of the Family and the Board

The best strategy for successful family business consists in focus on both the interest of the family and
the business. Both require dual spotlight and a degree of seperation.

- Family members must earn a voice in business governance by showing or developing

qualifications that convey the right to be heard. Those qualities are:
1) Excellence at your vocation (requires hard work, expertise and education. Excellence earns
respect).
2) Flexibility in your view of difficult issues. Be openminded.
3) Literacy in business language and the characteristics of your industry(interpret financial
statements, judge competitors, etc). Literacy eases communication
4) Preparedness to understand business concerns. This means study and understand the
information you are given by management.
5) Trust in management, since they are experienced and have expertise.

- Family member needs these qualities to earn voice in the family:

1) Disagree without being emotional
2) Puts the needs of family before self
3) Earn and retain respect from all family members

Business leaders must respect the right of the family to be informed about the business and to guide
certain dimension of its functioning.

2 separate governance processes for the business (active board) and family (family meetings or family
council) is the best way to develop the family business.

Some benefits of family meetings:

1) Building a stronger family

2) Building a stronger business
3) Planning family participation
4) Managing inherited wealth
5) Preserving family tradition and history
6) Opening up the succession process
7) Recognizing and resolving conflicts
8) Managing relations between the family and the board

Some benefits of active board:

1) Providing experience and expertise

2) Helping to creative thinking and decision making
3) Assisting in strategic planning and monitoring implementation
4) Providing aid in business owners ideads
Three circle model of governance

Family: share the values and goals for the business and articulate them in written policies.

Primary responsibility of Family: family values/missions, community in the family, family relations,
resolving family conflicts, board composition and ownership succession.

Board(ownership): ensures that shareholder interests are served and tries to help management make
the best possible decisions, as well as foresee developments that could change the way the business is
nowadays.

Primary responsibility of board of directors: management succession, business strategy, dividends

distribution, board composition and selection of directors.

Management: takes care of operations, human-resources and systems steps necessary to implement the
re-engineeiring efficiently and well.

Primary responsibility of management: business culture, employee relations, salary and day to day
operations.

“The roles of family, board and management are separate and distinct yet complementary and mutually
supportive.”

About family business leaders: establishing family meetings or family council can actually strengthen
family business leaders by informing them about family concerns before they erupt into disputes. (In
such situations, knowledge is power- and a well informed leader is best equipped to avert problems).

About involving other family members: allowing family member to talk their ideas can prevent their
concerns from festering into a destructive internal cancer that can destroy both family and business.

“It is impossible to sustain family trust in the business without sharing information”.
Board of Directors
Understanding your roles and responsibilities should be your first task when appointed. The board of
directors is appointed to act on behalf of the shareholders to run the day to day affairs of the business.
The board are directly accountable to the shareholders and each year the company will hold an annual
general meeting (AGM) at which the directors must provide a report to shareholders on the performance
of the company, what its future plans and strategies are and also submit themselves for re-election to the
board.

The board of directors' key purpose is to ensure the company's prosperity by collectively directing the
company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders.

It is important that board meetings ar

e held periodically so that directors can discharge their responsibility to control the company's overall s

ituation, strategy and policy, and to monitor the exercise of any delegated authority, and so that individual
directors can report on their particular areas of responsibility.

Roles of the board of directors

Establish vision, mission and values
Set strategy and structure
Delegate to management
Exercise accountability to shareholders and be responsible to relevant
stakeholders

Shareholders Council

Family Council