What is this thing called “Corporate Governance?” Some describe it as a collection of customs and policies that affect the way a corporation is administered. Others define it as the relationships among the stakeholders, shareholders, executives, boards of directors, employees and customers.
None of these descriptions includes, “Ask your mother, grandfather or Uncle Ahmet,” or “Because I said so.” Yet that often is the control mechanism in family businesses – someone in authority commands or decrees that a decision be so.
The family businesses that have been sustained over generations have an internal governance structure that parallels those found in leading businesses around the world. Such structures provide an internal discipline on how family and non-family members function within the business. A governance structure helps to professionalize the way a family business operates. Proper corporate governance includes the following:
Board of Directors – The board sets company policy and direction and approves the president’s overall strategy. The board must be populated with relevant persons who have proven competence to function in the role. The most effective boards include committees with specific responsibilities.
Chairman of the Board – In family business, this position is filled by a shareholder, which is typically a family member.
President or Chief Executive Officer – The president, with his team of executives, creates a strategy for achieving corporate goals and return on investment, return on managed assets or other measurable performance criteria. The president is responsible for assembling a team of professionals that can implement the corporate strategy.
Chief Financial Officer – This person directs and oversees all financial activities of the corporation.
The Family Business Council – Many families find it effective to create a forum where business can be discussed and family members can be educated about business matters. This is a gathering place for all family members, whether involved in the business or not. It is neither a forum for discussion of business operations nor a place where decisions about the business are made. Some families use this structure to improve communication within the family, to build on and enhance the values that are the glue for the family and to teach specific things such as finance, charitable giving, personal money management and other issues relevant to raising responsible adults.
Each of the roles described in corporate governance carries clear job descriptions, with very specific authority, responsibility and accountability. In the family council, family members learn that they must observe and respect the corporate governance.
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