Corporate Governance in Family Businesses

The Governance intricacies in family-run business firms: About 80% of companies worldwide and 40% of Fortune 500 companies are family businesses. Studies have shown that when compared with other firms, family firms perform better in tough periods in contrast to periods of economic boom. This is because family firms are not looking at making a quick buck while the sun shines. They are creating wealth for the family and building a legacy for future generations. Hence governance approach is to take a long-term view, save for a rainy day and focus on meeting family aspirations. The intersection between family, ownership, board and management and the overlapping interest groups, creates a unique governance cost of balancing family expectations with interest of company’s other stakeholders particularly outside shareholders. Family Dynamics, conflict between family aspirations and company requirements, unwillingness of promoters to relinquish control, non-acceptance of outside managers, inadequate succession planning and limited role of independent directors are additional governance issues faced in family-owned businesses. Only a small percentage of family businesses survive and grow beyond second and third generations. Successful families define their family enterprise and nourish it by creating strong bond among members, nurturing family values and building sound networks based on mutual trust. With appropriate governance mechanisms and timely actions, both families and their businesses can not only preserve but prosper. Formal structures-family council, family assembly and the family charters bolster the family governance system. In a world full of uncertainties, only business houses that have mastered the art of family enterprise have survived many years.