Corporate governance refers to the structures and processes for the direction and control of businesses and the relationships among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders. Since good corporate governance contributes to sustainable economic development by enhancing the performance of companies, it is imperative that companies adopts good corporate governance structures to enable them grow. Family businesses are an often overlooked form of business ownership in today’s world, yet they constitute a majority of the businesses. This means that families own a significant share of businesses and can influence important decisions in today’s business world. However, according to Neubauer and Lank, until recently, the study of corporate governance in family business has been a largely neglected area of research [1]. As family businesses are an important component of every economy and play a critical role in promoting growth of a country’s economy, as they grow, they face same challenges and pressures as any major corporation. To succeed, they must remain ahead of the competition, adopt good corporate governance practices and skillfully navigate through market changes. This paper is an empirical study from the current authors’ previous work on the topic “Corporate Governances in Ghanaian Family Businesses: A Conceptual Framework” [2]. It examines the state of corporate governance environment and the nature of the governance system employed by family businesses using Ghanaian family businesses as a case study. The paper underlines why it is important for family businesses to adopt good corporate governance structures and attempts to understand the point of view from the subjects’ perspective, due to the complex social situations that exist in the family businesses.
In any organization, corporate governance is one of the key factors that determine the health of the system and its ability to survive economic shocks. The health of the organization depends on the underlying soundness of its individual components and the connections between them. Good corporate governance therefore contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.
Family businesses are one of the foundations of the world’s business community. Their creation, growth and longevity are critical to the success of the global economy. Despite facing many of the same day-to-day management issues as publicly-owned companies, they must also manage many issues that are specific to their status in order to grow since global economy is built around family businesses. In the views of Pearl Initiative & PricewaterhouseCoopers [
According to Ward [
There are many distinguishing characteristics of what a family business is, and the single most obvious point of difference, of course, is the ownership structure, and while this tends to take the form of direct and total family control, some firms also have non-family shareholders and/or executives, and a stock market listing is quite common. The family ownership structure also leads to notable differences in corporate governance provisions. Companies operating within widely different cultural and social contexts needs a governance framework that reflects this, especially in relation to sensitive issues such as board structures and succession arrangements.
Since family businesses are among the most important contributors to wealth and employment creation in virtually every country of the world, their state of governance is a cause for concern. In their views, Neubauer & Lank states that until recently, the study of corporate governance in family business has been a largely neglected area of research [
At the very basic, corporate governance is about ensuring that the concerns of a company’s shareholders and stakeholders are taken into proper account, and all their interests balanced. Therefore, for family businesses to offer greater transparency to the principal stakeholders, corporate governance should be achieved through main corporate governance elements such as board supervision, auditing process and financial disclosure as well as institutional and societal arrangements. In view of this, the question of governance of family businesses has therefore catapulted to prominence in recent years and in each context the growth of interest stems from the sense that there has been a governance crisis [
The literature on corporate governance indicates that approach to this issue are deeply influenced by the historical, political, industrial, social and cultural contexts of a country and this is supported by the assertions made by Hua et al. [
The corporate governance literature affirms that corporate governance is one of the important factors influencing performance [
Milgrom and Roberts [
The primary objective is to determine whether family businesses need corporate governance system by using Ghana as a case study. The study will also seek to raise awareness and understanding of governance issues, trends and existing practices amongst family businesses and finally enable family businesses to benchmark their own business against others in the country and gain insight from how similar businesses address these issues
The study will therefore show that corporate governance allows businesses to prepare for their pending initial public offering. For example, in Ghana, early introduction of corporate governance would prepare a family business well enough―even before it gets listed under the provisional listing regime. The existence of a board will induce rapid growth strategies in the family business for rapid profits; this will at a point require the business going public for larger finances. This will complement efforts by the Ghana Stock Exchange to encourage listing of family businesses on the market. Thus the transition from a small to medium and finally large company will be smoothly aided by an effective corporate control system.
Today, the scope of family businesses has expanded to include some of the world’s largest companies and their economic weight remains massive. In all markets, family-owned businesses form the bulk of the economy and in terms of numbers of individual enterprises they account for a significant proportion of GDP in their markets. Small and Medium Scale Enterprises (SMEs) in Ghana, which are mostly family businesses, have been noted to provide about 85% of manufacturing employment, contribute about 70% of Ghana’s GDP and account for about 92% of businesses in Ghana. Agbor and Quartey [
It is well established that the global economy is built on the family firm. Many of the largest multinational corporations began as family firms, and around 90% of the world’s businesses can be defined as family firms, both in developed and emerging markets. In the view of Peters [
However, it must be stated here that a review of the literature reveals a long list of elements used by numerous authors to define what a family business is [
a) Family relationship is a factor, among others, in determining management succession;
b) Wives or sons of present or former chief executives are on the board of directors;
c) The important institutional values of the firm are identified with a family, either in formal company publications or in the informal traditions of the organization;
d) The actions of a family member reflect on or are thought to reflect on the reputation of the enterprise, regardless of his formal connection to the management;
e) The relatives involved feel obligated to hold the company stock for more than purely financial reasons, especially when losses are involved;
f) The position of the family member in the firm influences his standing in the family;
g) A family member must come to terms with his relationship to the enterprise in determining his own career.”
We can therefore conclude that a family business is any type of business operation in which a group of relatives have controlling interest in the corporation. These types of businesses may range from a local mom and pop retail store to a commercial family farm and even for large corporations operating in multiple locations. In many instances, a family business is passed from one generation to the next, with children often training to enter the business at certain ages and take over various functions from their parents over time.
Donnelly’s definition covers two interacting dimensions of the family business, i.e. the family and the business. The understanding here is that to function properly, a business family may benefit from effective family governance, while the business may benefit from corporate governance. The primary focus of this paper will be on corporate governance, but without neglecting family governance.
It must be also stated here that the literature continues to have difficulty constructing common shared criteria to distinguish family business from non-family business [
At its most basic, corporate governance is about ensuring that the concerns of a company’s shareholders and stakeholders are taken into proper account, and all their interests balanced. In the special case of a family firm, a robust corporate governance framework can ensure a productive and sustainable relationship between the family shareholders and the executives managing the business, who may or may not be members of the family in their own right. In all family businesses, the potential for conflicts increases, for this reason, corporate governance in family businesses should include processes, principles, structures and relationships that resolve (role) conflicts in order to help the family to realise their particular visions, goals and objectives [
The justification for the emergence of the field of family business research lies in the assumption that family and non-family businesses are different. Recent empirical studies, such as one amongst S&P 500 firms [
Since there is no consensus of opinion about the concept of what family business is, we can find certain common elements in the definitions within the literature to conclude what they are. Behind many of those conceptualisations, there is, either implicitly or explicitly, the idea of family influence or control over a business, basically in two forms, ownership and management [
It must be stated that, the uniqueness of family businesses are rooted in the fact that the intra-organizational relationships are based on family ties and the intention is that those ties will last [
Family businesses are the leading form of business enterprises in the world [
As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges. The generations that follow the founder, for example, may insist on running the company even though they are not suited for the job. And as the number of family shareholders increases exponentially generation by generation, with few actually working in the business, the commitment to carry on as owners cannot be taken for granted. To be successful as both the company and the family, a family business must meet two intertwined challenges: achieving strong business performance and keeping the family committed to be capable of carrying on as the owner. Five dimensions of activity must therefore work well and in synchrony:
a) Harmonious relations within the family and an understanding of how it should be involved with the business;
b) An ownership structure that provides sufficient capital for growth while allowing the family to control key parts of the business;
c) Strong governance of the company and a dynamic business Portfolio;
d) Professional management of the family’s wealth;
e) Charitable foundations to promote family values across generations [
Today, the scope of family businesses has expanded to include some of the world’s largest companies and their economic weight remains massive. In all markets, family businesses form the bulk of the economy and in terms of numbers of individual enterprises, they account for a significant proportion of GDP in their markets. Agbor and Quartey [
For the purposes of this study, a “family business” is defined as a business in which:
a) The majority of votes are held by the person who established or acquired the firm (or their spouses, parents, child, or child’s direct heirs);
b) At least one representative of the family is involved in the management or administration of the firm;
c) In the case of a listed company, the person who established or acquired the firm (or their families) possess 25% of the right to vote through their share capital and there is at least one family member on the board of the company.
Family Businesses represent the highest proportion of businesses in the world [
The increased liberalisation of trade has created a vast amount of new opportunities for businesses during the last decades, but also increased the demands for specialisation and shaped the way companies do business [
The issue of globalisation is offering new business opportunities, growth and diversification for family businesses, which are consequently becoming more complex organizations. Generally speaking, growth goes in hand with several aspects, which all require that family businesses have to adapt their governance system such as an increasing separation of ownership and management, the involvement of new generations within the company, or a growing number of non-family managers [
Corporate governance is a very broad and complex area, especially when you are dealing with family businesses. The discussions on corporate governance usually cover the issues of control and interest differences between the owners and the management and seek ways to align the interests of both sides [
According to the revised principles of corporate governance of OECD, corporate governance can be defined as:
“Procedures and processes according to which an organization is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization?such as the board, managers, shareholders and other stakeholders?and lays down the rules and procedures for decision making.” [
Keasyey et al. and Blair describes this perception of corporate governance, which mainly refers to agency theory, as the so-called narrow-view [
Specifically, corporate governance is divisible into: corporate governance structure and corporate governance process. Governance structures, which include ownership structure and board structure, are intended to discipline the behaviour of corporate governance actors (owners, directors and executive management). Governance processes refer to the interaction of governance actors based on governance structures. Hence, governance structures influence the effectiveness of the governance process and ultimately the firm performance. Evidence from the literature suggests that good governance generates investor goodwill and confidence. For example, Gompers et al. [
H1 = Good Corporate Governance Affects Performance of Family Businesses.
Corporate governance has dominated policy agenda in developed market economies for more than two decades, and it is gradually worming its way to the top of the policy agenda on the African continent. The Asian crisis and the relative poor performance of the corporate sector in sub-Saharan Africa have made corporate governance a catchphrase in the development debate [
Traditionally, corporate governance has been associated with larger companies and the existence of the agency problem. This agency problem arises as a result of the relationships between shareholders and managers. It comes about when members of an organization have conflicts of interest within the firm. This is mainly due to the separation between ownership and control of the firm. It is therefore tempting to believe that corporate governance would not apply to family businesses since the agency problems are less likely to exist. In many instances, family businesses are made up of only the owner who is the sole proprietor and manager [
H2 = Family Businesses Have a Better Governance Systems than Non-Family Businesses
It has been identified by many writers that governance has a positive influence on a business’s performance [
The term “corporate governance” has been used in many different ways and the boundaries of the subject vary widely. Despite these the three key but divergent theories that underpin perceptions and approaches to corporate governance are “Agency Theory”, “Stewardship Theory”, and “Stakeholder Theory”. Among these three theories, the one more peculiar to family business is the Stewardship Theory.
Stewardship TheoryStewardship Theory has its roots from psychology and sociology and is defined by Davis, Schoorman & Donaldson [
Due to this, it gives a better understanding of owner-manager relations within family businesses who also pursue non-financial goals [
In this perspective, stewards are company executives and managers working for the shareholders, protect and make profits for the shareholders. Unlike Agency Theory, Stewardship Theory stresses not on the perspective of individualism [
Agyris [
Increasing growth and globalisation has brought many challenges for family businesses and many of these challenges can be tackled by adopting sound corporate governance structures [
Corporate governance creates a solid organizational structure that clarifies roles, reporting lines and delegation of responsibility. It also draws the line between ownership and management and separate policy direction from the day-to-day running of the company. Also successful family businesses are the result of years of hard work and dedication and there is a need to ensure that the leadership transition does not disrupt the company’s growth [
A solid governance system helps to resolve conflicts within the family setting, thereby allowing the family members to focus on other key issues of the business. This would invariably lead to an open decision making and procedures that ensures fairness, an essential tool in avoiding tension and thereby raising the reputation of the company.
In line with the above, the following principles of corporate governance [
・ Shareholder recognition is a key to maintaining a company’s stock price. More often than not, however, small shareholders with little impact on the stock price are brushed aside to make way for the interests of majority shareholders and the executive board. Good corporate governance seeks to make sure that all shareholders get a voice at general meetings and are allowed to participate.
・ Stakeholder interests should also be recognized by corporate governance. In particular, taking the time to address non-shareholder stakeholders can help your company establish a positive relationship with the community and the press.
・ Board responsibilities must be clearly outlined to majority shareholders. All board members must be on the same page and share a similar vision for the future of the company.
・ Ethical behaviour violations in favour of higher profits can cause massive civil and legal problems down the road. Underpaying and abusing outsourced employees or skirting around lax environmental regulations can come back and bite the company hard if ignored. A code of conduct regarding ethical decisions should be established for all members of the board.
・ Business transparency is the key to promoting shareholder trust. Financial records, earnings reports and forward guidance should all be clearly stated without exaggeration or “creative” accounting.
Good corporate governance therefore strengthens and clarifies the activities of the family business while improving its competitiveness. Proper functioning and transparency of the roles and responsibilities of all organs in the firm are in the interest of the owners, other stakeholders and the whole company.
It is particularly essential in family business that the roles and responsibilities of the distinct owners, operative executives and the family are clear and that they are jointly defined and approved. Family businesses also utilize the organs of corporate governance in a specific manner. In family businesses, jointly agreed corporate governance practices primarily act as concrete tools for developing and controlling business activities. For instance, the owners are aware of their various ownership roles and influence; the board of directors and the managing director have their own clearly defined roles and responsibilities, as do the council of owners. The clearly defined corporate governance of family business also creates added value to those activities with external stakeholders, for instance, in financial and investment processes.
Governance is concerned with all of the ways that the interest of owners is reflected and implemented in the organizational system. The financial and economic crisis in 1997 shook many top family businesses in the world, leading to an erosion of their business base. The crisis wiped out some of the most prominent family business groups in the world. The crisis has generated a lot of interest. Many scholars have attempted to examine the causes as well as to search for ways to reform. One of the contributing factors is the poor corporate governance in the corporate sector, which is due to “ownership concentration”. If the goal is long term continuity, this points to the need to institutionalize the roles and relationships that are present in the family business, rather than simply rely on current relationships. In short, long term business continuity requires there to be clarity as to how the family business will be governed.
All family governance structures and institutions require a certain degree of formalization if they are to function well. When these families adopt policies on the family’s approach to the business and for governing the business, they will formalize these efforts with documents that will differ depending on their ownership stage of the business. Normally, in the earlier stages when the company is governed by the founder or his/her children, many aspects of family and business governance are informal. Efforts to formalize will mostly relate to the business itself.
The family aspect is what differentiates family businesses from their counterpart non-family businesses. As a consequence, the family plays a crucial role in the governance of these businesses. When the family is still at its initial founder(s) stage, very few family governance issues may be apparent as most decisions are taken by the founder(s) and the family voice will be still unified. Over time, as the family goes through the next stages of its lifecycle, newer generations and more members join the family business. This implies different ideas and opinions on how the business should be run and how its strategies are set. It becomes mandatory, then a clear family governance structure that will bring discipline among family members, prevent potential conflicts, and ensure the continuity of the family’s business should be established. A well-functioning family governance structure will mainly aim at:
・ Communicating the family values, mission, and long term vision to all family members.
・ Keeping family members (especially those who are not involved in the business) informed about major business accomplishments, challenges, and strategic directions.
・ Communicating the rules and decisions that might affect family members’ employment, dividends, and other benefits they usually get from the business.
・ Establishing formal communication channels that allow family members to share their ideas, aspirations and issues.
・ Allowing the family to come together and make any necessary decisions.
Developing such a governance structure will help build trust among family members (especially between those inside and outside of the business), and unify the family thus increasing the viability chances of the family business.
First attempts at written policies usually are brief documents that state a general family vision and mission with respect to the company. The next level of formalization comes with the need to develop a family employment policies, which becomes more apparent when the company reaches the sibling partnership stage. The policy sets clear rules on terms and conditions of family employment within the firm. For some families, these rules stipulate conditions of entry, retention and exit from the business. It should also cover the treatment of family member employees’ vis-à-vis non-family employees.
In their third, fourth and succeeding generations, family businesses can barely survive unless full family governance policies are developed, written and communicated within the family and the business, and also to other outside stakeholders. This document covering all of these policies is commonly called a family constitution. The document expresses the family’s principles regarding the family commitment to core values, vision, and mission of the family’s business. It often defines the roles, compositions, and functions of family governance institutions and the company’s own governance bodies, such as the shareholders’ meeting, the board of directors and senior management.
Governance in a family business can be thought of in terms of:
a) Structures, such as creating a family learning and development committee;
b) Processes, for example, creating and running ongoing ownership education programs and the annual preparation of a personal development plan; and
c) Policies, for example, an aspect of the family employment policy could be that family member employees are expected to participate in the family learning and development programs.
If the need of one domain has no way to be represented, they do not just evaporate, they find another outlet. This is like the displacement of an emotion. For example, if there is no way for ownership issues to be expressed they appear in the bad and board meetings turn into shareholders meetings1. This points to the importance of having appropriate structures and forums so that the interest of the family circle and the interests of ownership can be properly expressed. An example of this would be the creation of a “family council” or of an “owner’s council”. Basic governance structures in a family business can therefore include:
(i) a family assembly;
(ii) a family council;
(iii) a separate ownership council or forum;
(iv) the board of directors; and
(v) an advisory board.
From there a particular family might decide that it also needs one or more committees as depicted in
In looking at the definitions of what a family is, the concept implies certain links based on relationships of trust. This reduces the costs of running the enterprise because it lowers the costs of supervision while providing a safeguard against opportunist behaviour and may form the basis of moral integrity [
In the light of the above, it is therefore necessary in family businesses to examine, apart from the elements of corporate governance, the role of the owner family in firm governance since it is precisely that family element that differentiates these organizations from any other business form. Family governance can therefore be defined as the set of institutions and mechanisms whose aim is to order the relationships occurring within the family context and between the family and the business. These mechanisms may be both formal and informal and will vary over time in line with stage of ownership and the life cycle of the firm and the family [
Qualitative research seeks to explore a specific phenomenon, not to prove a prediction. From a methodological
point of view, therefore, this paper will follow a qualitative approach. As Kontinen and Ojala [
Case study research involves an in-depth study of an individual or group of individuals. Case studies often lead to testable hypotheses and allow us to study rare phenomena. Case studies should not be used to determine cause and effect, and they have limited use for making accurate predictions. There are, however, two serious problems with case studies―expectancy effects and atypical individuals. Expectancy effects include the experimenter’s underlying biases that might affect the actions taken while conducting research. These biases can lead to misrepresenting participants’ descriptions. Describing atypical individuals may lead to poor generalizations and detract from external validity.
According to Holme & Solvang [
Since the purpose of this research is to establish whether good corporate governance structures in family businesses is a must, a qualitative approach seems to be the most suitable one. This way, new knowledge can be gained and an understanding will be deepened, as the interviewees can show how they think about corporate governance structures in their businesses.
Two main approaches were used to achieve the purpose of the study. The first was the short personal interview during a familiarity visits to the selected family businesses. Based on the familiarity visit, interview format and a questionnaire was designed, which were used as a second approach in collecting responses from these family businesses. The questions were structured in such a way to provide information on family governance structures and corporate governance institutions in the business and how vital these are to the conduct of their businesses.
A purposive sampling technique was used to select one hundred and twenty (120) family businesses located in various parts of Ghana. Purposive method was used because these businesses are scattered all over the country. After the interviews’ conclusions were drawn from the information obtained using a statistical package, the analysis were made.
The Bartlett’s test of sphericity is used to test for the adequacy of the correlation matrix, i.e., the correlation matrix has significant correlations among at least some of the variables. If the variables are independent, the observed correlation matrix is expected to have small off-diagonal coefficients. Bartlett’s test of sphericity tests the hypothesis that the correlation matrix is an identity matrix, that is, all the diagonal terms are 1 and all off-di- agonal terms are 0. If the test value is large and the significance level is small (p < 0.05), the hypothesis that the variables are independent can be rejected. In the present analysis, the Bartlett’s test of sphericity, as shown in
The communalities output presents the communality of each variable (i.e., the proportion of variance in each variable accounted for by the common factors). Since the principal components method of factor extraction was used, as many factors as possible were computed as there are variables. When all factors were included in the solution, all of the variance of each variable was accounted for by the common factors. Thus, the proportion of variance accounted for by the common factors, or the communality of a variable is 1 for all the variables.
In
The pattern matrix shows the loadings of each of the variables. This shows the variable loadings on the four (4) factors with forty five (45) variables loading more than 0.35 on component 1, eight (8) variables loading on component 2, six (6) variables loading on components 3 and 4 respectively. Now critically looking through the
Kaiser-Meyer-Olkin Measure of Sampling Adequacy | Bartlett’s Test of Sphericity | ||
---|---|---|---|
Approx. Chi-Square | df | Sig. | |
0.957 | 27324.257 | 1326 | 0.000 |
Source: Fieldwork.
Component | Initial Eigenvalues | Extraction Sums of Squared Loadings | ||||
---|---|---|---|---|---|---|
Total | % of Variance | Cumulative % | Total | % of Variance | Cumulative % | |
1 | 40.292 | 77.484 | 77.484 | 40.292 | 77.484 | 77.484 |
2 | 5.181 | 9.964 | 87.448 | 5.181 | 9.964 | 87.448 |
3 | 1.994 | 3.835 | 91.282 | 1.994 | 3.835 | 91.282 |
4 | 1.180 | 2.269 | 93.551 | 1.180 | 2.269 | 93.551 |
Source: Fieldwork.
matrix for the highest loading variables on each component to identify and label the component. Here, the main loadings on component 1 are variables: Shareholders are provided with sufficient company information, I am aware that I carry legal risk, I am aware of the level of remuneration of senior management in the business, the development of governance measures have kept up with the growth of the business, and suitable performance management systems are in place for the board, the contribution of the board is effective with loadings 1.010, 0.989, 0.988, 0.985, 0.978 and 0.976 respectively.
However, the main loadings on component 2 are variables: Company has a definitive constitution with regards to its business interests and family members are provided with sufficient company information with loadings 0.789 and 0.750 respectively. Also, the main loadings on component 3 are variables: My performance is monitored and managed and the company has a well policies and guidelines that regulate all the perks and benefits that I receive with loadings 0.943 and 0.755 respectively. Further, component 4 had the main loadings as follows: You regard this as a family business and the company has other sister companies with loadings 0.397 and 0.337 respectively.
Thus the first component was identified as organization’s corporate governance, the second component identified as the organization’s family governance, the third component identified as the organization’s executive management, the forth component identified as the organization’s general.
From
The purpose of this study was to investigate whether a corporate governance structure is a must for family businesses. The main question with respect to whether good corporate governance practises can lead to improved performance of family businesses or not. To answer this question, we derived two major research hypotheses, each focusing on a different aspect presented in the frame of reference. The aim of this study was therefore to contribute to the on-going debates in the field of family business corporate governance. With this paper we advance the understanding of how and why family businesses set up their governance structures and consequently contribute to an area where a lack of qualitative research exists.
The study proves that the issues of family business corporate governance come to the fore when the business owners consider major transitions such as the sale of the business or succession planning. It was realised that although informal governance in some family businesses seem to work well, there is still a need to have a more formal corporate governance structure to plan ahead for the business. In most cases, major undertakings and decisions are made as a family, with the head of the family taking the lead. But as the business grows, the need for a more formal framework was required in these businesses so as to avoid overlap, confusion and possible disagreement.
Executive | Family | Corporate | |||
---|---|---|---|---|---|
Spearman’s rho | Executive | Correlation Coefficient | 1.000 | 0.148 | 0.811** |
Sig. (2-tailed) | 0. | 0.056 | 0.000 | ||
Family | Correlation Coefficient | 0.148 | 1.000 | 0.214** | |
Sig. (2-tailed) | 0.056 | . | 0.005 | ||
Corporate | Correlation Coefficient | 0.811** | 0.214** | 1.000 | |
Sig. (2-tailed) | 0.000 | 0.005 | . |
**Correlation is significant at the 0.01 level (2-tailed). Source: Fieldwork
This study therefore proves the importance of a stewardship oriented culture and low agency cost for family businesses as a source of competitive advantage, which is based on informal governance structures. Indeed it is established that family businesses need a continuous communication culture, a transparent plan to follow and clear lines of authority. When they achieve this it helps to alleviate any problems within the family business due to emotions and confusion caused by the absence of it. It also comes out whilst that most family businesses recognise that governance structures are vital elements for their businesses, only a few manage to inculcate corporate governance into their systems and business structure.
It also came to light that the need for a governing board for family businesses is essential for the running of such businesses. A vibrant and effective board should be responsible for adding value to the business in three ways:
1) Presiding over the leadership, operations and finances of the business;
2) Ensuring that the business has a strategic direction by anticipating the need for change and identifying new opportunities for it;
3) Mediating among the needs of family shareholders, employees, other stakeholders and the business.
For any family business board to be effective, the members should include family owners/shareholders, executive directors (employees) and non-executive directors (non-employees), and the board is bound to act in good faith, care and due diligence as they are appointed to look after the interests of the organization and its employees.
In conclusion it must be stated that the principles of corporate governance apply to both listed and non-listed companies and institutions in the private and public sectors in Ghana, such as non-governmental organizations, charities, businesses and government boards, trusts and agencies. Aside these, good governance is a must for every business but for family businesses, corporate governance is a crucial paradigm shift, so significant, that it determines the continuity or growth of every family business. The main goal of good corporate governance is to give direction for families in the business as they move on to the next stage of development of their businesses, and its consequences on the family and the business as a whole.
However, at that stage of their development certain challenges unique to family businesses, such as business succession and exit planning, can be critical to the success of the business. Therefore to address family business issues, the governing boards serve as a working resource to lay down sound decisions on strategy, accountability, succession and responsibility. In view of that, attaining certain level of reflective capability, expertise, knowledge and power by the board to bind the family and the business, especially during difficult times, is needed to empower them to make the best business decisions. Indeed, family businesses maintain and play a key role in Ghanaian business community, as well as contribute immensely towards the economic development of the country. Ensuring their continuity therefore by bringing matters to the corporate table has great potential to build not only stronger family businesses, but also stronger families as well.
The need to minimize corruption in the Ghanaian business and corporate sector is inevitable and this calls for government interventions in the form of legislations to establish strict governance structures at all levels. This is necessary because large family businesses in developed countries that survive for many generations make sure to permeate their ethos of ownership with a strong sense of purpose. They indeed develop oral and written agreements over time that address issues such as the composition and election of the company’s board, the key board decisions that require a consensus or a qualified majority, the appointment of the chief executive officer, the conditions in which family members can (and cannot) work in the business, and some of the boundaries for corporate and financial strategy.
It is also recognized that keeping a business going across generations is hard. However, the failure to maintain the family business can come from a number of causes. This may include divisions formed between those relatives enjoying both salaries and dividends and those receiving only dividends, which may create jealousy among some family employees who rise higher than others or work less hard for the same pay. Further for some businesses supervisors, they may even find themselves incapable of firing an under-performing subordinate who is a child, a sibling or a cousin. Also as the business grows and markets evolve, finding sufficient managerial talent and experience within the family becomes harder and when the family decides at last to hire an outside manager, failure to motivate and monitor him can damage or destroy the established family business. In order to solve some of these problems in family businesses, corporate governance goes to the heart of them, though many family-run businesses have never thought of it in these terms. Family owners need corporate governance both to operate the business and to promote family harmony. It may involve putting in place decision-making and monitoring procedures that are open and fair, as well as possibly hiring non-family members as advisors, managers and directors. This is not an overnight exercise, however, it can help businesses represent the work and the wealth of several generations and also help business owners to preserve, enlarge and pass on this legacy to the next generation. However, they can achieve this only by making corporate governance a family affair.
Family businesses who want to survive in these turbulent economies must develop agreements that will superintend over their governance decisions. In order to this, the continual development and interpretation of these agreements, and the governance decisions guided by them, may involve several kinds of family forums. A family council representing different branches and generations of the family, for instance, may be responsible to a larger family assembly used to build consensus on major issues.
The study showed that most family businesses often worry that family governance means introducing needless complexity and bureaucracy into their business. However, the relevance of corporate governance cannot be over emphasized since it constitutes the organizational climate for the internal activities of a company. In Ghana, corporate governance can greatly assist the family businesses by infusing better management practices, stronger internal auditing and greater opportunities for growth. Good corporate governance structures encourage families to communicate and work together more effectively, and it is pivotal to the success of any family business.
By adopting corporate governance measures at both the family and business levels, it provides good solutions to family ownership challenges and such measures are indispensable to the long-term successes of the family business. Corporate governance brings new strategic outlook through external independent directors; it enhances a firms’ corporate entrepreneurship and competitiveness. It is not a threat to value creation in entrepreneurial firms if the guidelines on corporate governance are properly applied.
In the course of running such businesses, family-owned businesses face many challenges for their profitability. Also another set of challenges they face which need to address is how to obtain the trust of investors and, in many cases, to make the company sustainable in the long run. Good governance mechanisms among family businesses are likely to result in boards exerting much needed pressure for improved performance by ensuring that the interests of the firms are served.
Furthermore, increasing growth and globalisation have brought many challenges for family businesses and the way to deal with these issues could mean the difference between success and failure. However, many of these challenges can be tackled by adopting sound corporate governance structures. It must be stated that good governance practices make all the difference for a family-owned company. Family businesses with effective governance policies, procedures and practices are more likely to carry out effective strategic and succession planning.
With effective strategic planning, board members bring into the firm expertise and knowledge on financing options available and strategies to source such finances thus dealing with the credit constraint problem of family businesses as well. Often businesses that seeking new funds find that they have much work to do before confidently going to the market. A consistent track record of good governance will greatly assist when that point comes. It must be noted that good governance does not guarantee business success. However, poor governance could be symptomatic of a business failure. More importantly, lifting the confidence of existing owners and potential new ones is a valuable goal.
With growth of the family business, a call for a possible sale of the firm may arrive and during this period corporate governance becomes crucial to the organization. Where a firm consistently practices good governance will greatly assist when that point comes. Thus the transition from a small to medium and finally large company will be smoothly aided by an effective corporate control system.
Finally, applying good governance principles will reduce the problems associated with information asymmetry and makes the family less risky to invest in since corporate governance has been accepted globally as a system of law and sound approaches by which corporations are directed and controlled, focusing on the internal and external structures with the intention of monitoring the actions of management and directors, so as to mitigate agency risks that may stem from the misdeeds of corporate officers.
However, the corporate governance measures that family businesses can adopt will vary, depending on the stage of the controlling family’s ownership, but in doing this attention should also be drawn to the disadvantages of corporate governance. These may include additional roles in audit, remuneration and nomination committees, new and more directors to be hired, especially non-executive directors who will also have to be paid higher remuneration because of active roles they will play. These and others may lead to increase operational costs but nonetheless, the benefits of corporate governance in family businesses for an economy like Ghana cannot be overlooked.