Why is Corporate Governance Critical to Young Family Businesses?

We often hear that corporate governance is crucial for family businesses. More than half the time, family businesses bring in elements of corporate governance because of legal compliance, and not necessarily because they fully embrace the need for it. In this piece, let’s look why else is corporate governance crucial for family businesses.

1. Handling Complex Issues – Family businesses often expand and as they go global, their issues related to stakeholder relationships grow complex. Relationships between managers, employees, investors, owners, and clients change and evolve. Corporate governance smooths these kinks for growing family businesses.

2. Organizational Structure – Corporate governance creates solid organizational structure that clarifies reporting-lines, roles, delegation. It discerns by creating boundaries between management and ownership, so that business as usual is smooth and not disrupted by any leadership transitions.

3. Conflict Resolution – Solid governance helps family members resolve conflicts within the family settings, so they can focus on other aspects of the business. This leads to open discussion, decision making and ensures fairness.

4. Shareholder Recognition – This is critical to maintaining the stock prices of a company. Corporate governance ensures that all shareholders participate and get a voice at general meetings; irrespective of how many stocks they own or how much impact they make on the stock price.

5. Board responsibilities and Stakeholder Interests – They are a very critical factor to recognize. When it comes to board responsibilities, it is often possible that a board may just become titular in nature rather than functional. Hence, responsible corporate governance structures ensure that board responsibilities and stakeholder interests like those of the community, press etc. are also maintained.

6. Ethics – Sometimes it’s easy to get carried by profits and lose site of the ethics and vision. It can affect code of conduct, business transparency, and employee treatment. Again if not for good corporate governance, the activities of the family business could lose the ethical direction as it expands and scales.

In family businesses, corporate governance practices that are mutually agreed upon, act as a tool for concretely controlling and building multi-directional growth and organization. Through corporate governance family business are able to add and create value for all stakeholders.