Latest survey on successful governance practice
30th March 2012 Paul Andrews
Coutts reveals how family business owners can improve the odds of successful succession
Coutts has just issued its first ever study into the importance of governance for family businesses. The report, entitled ‘Governance in Family Business’ identifies key challenges faced by family businesses, and suggests guiding principals that can help them improve the odds of longevity. The report is based on data provided by over 300 family businesses and identifies a number of characteristics of family businesses, the issues that they are faced with and the challenges created by family involvement.
Key findings and guiding principals include:
Family businesses’ board sizes varied from one to 22. Typically, the larger entrants had boards of six to eight members. The majority of entrants met monthly. The Report highlights how good governance starts with a well structured and balanced board. The Report also demonstrates how Board positions should be based on competence and merit rather than emotion to ensure that the people who are appointed are the best for the business and of the highest calibre.
25% of the larger entrants had two or more non-executive directors on the board, although 62% did not have any. The Report focuses attention on how employing non-family management can bring a wealth of experience and ideas to the business which the family may not possess. The Report also stresses how non-family executives, non-executives, senior managers, consultants, mentors and coaches can all play important roles in strategic planning and acting as an independent sounding board.
About 30% of the larger entrants said they have a constitution or equivalent, or had plans to draft one soon. The Report suggests that although governance arrangements can work informally, they are often more robust and reliable when rigorous process and intensive discussion results in principles that are agreed and documented.
Over 50% of the larger entrants separated the roles of CEO and chairman. The roles were often taken by different generations of the family. The Reports considers that although private family businesses are under no formal obligation to separate the roles, clearly defining roles and responsibilities can help to avoid potential conflicts.
Succession is one of the biggest challenges faced by any family business. The Report emphasises the importance of separating ownership succession from management succession. The Report also underlines how both involve different considerations and take time to get right.
Mark Evans, Head of Family Business and Philanthropy comments, “Family businesses have been taking governance seriously for centuries, but they have the added complexity of an additional group of stakeholders – the family itself. In this report, we have outlined the key issues surrounding governance in family business and provided guidance based on real life experiences. Family businesses that take the time to work out what is right for the family as well as the business can significantly improve the odds of successful succession.”