The paper investigates the challenges faced by Non-Executive and Independent Directors in ensuring that good corporate governance practices are adhered to in non-listed Ghanaian family business at all times using non-listed family business in the Ashanti Region of Ghana. The findings revealed that the presence of non-executive and independent directors had no significant effect on the performance of non-listed family businesses in Ghana since they were dormant in most of the roles expected to be discharged by them and active in only few responsibilities or roles. It is also discovered that the boards of non-listed family businesses meet only when there is a problem to solve and not regularly. The owner-manager-chief executive office-board chairman, makes all decisions and ensures its implementation. The results draw the attention of policy makers to the position of non-executive and independent directors in family businesses given the enormous positive contribution they play to the economic development of the nations and their contributions to the society in general.
The need for a good corporate governance practice in family businesses in developing countries cannot be over emphasized since these businesses contribute to Gross Domestic Product (GDP) and invariably economic development. An economy’s corporate governance system has a significant impact on the profitability and growth of corporations, their access to capital, and their cost of capital [
The issue of 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 its associated agency problems as a result of the relationships between shareholders and managers. The agency problem comes about when members of an organisation have conflicts of interest within the firm mainly due to the separation of ownership and control in the firm. It is therefore tempting to believe that corporate governance would not apply to unlisted family businesses (UFB’s) 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 [
It is also the perception of many that because UFB’s have few employees who are mostly relatives of the owner and thus have no separation of ownership and control there and therefore there is no need for corporate governance in their operations. Also, the question of accountability by UFB’s to the public is non-existent since they do not depend on public funds. Most especially the UFB’s do not necessarily need to comply with any disclosure. Because there is no agency problem, profit maximisation, increasing net market value and minimising costs are the common aims of the members. Members also disregard outcomes of organisational activities that will cause disagreement. They are rewarded directly and as such need no incentives to motivate them. Thus disagreement does not exist, and hence there is no need for corporate governance to resolve them.
It must be however borne in mind that, “a man who collects honey is always tempted to lick his fingers” [
Despite these arguments, there is a global concern for the application of corporate governance to UFB’s. It is often argued that similar guidelines that apply to listed companies should also be applicable to UFB’s because corporate governance can greatly assist the UFB’s by infusing better management practices, stronger internal auditing and greater opportunities for growth [
Corporate governance brings new strategic outlooks through external independent directors; it enhances firms’ corporate entrepreneurship and competitiveness. It is not a threat to value creation in entrepreneurial firms if the guidelines are properly applied. 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 UFB’s as well. For UFB’s in particular, the role of other stakeholders must be well-articulated through a bottom-up approach where, for example, unions’ views are explicitly laid out in board meetings.
In view of the above it is envisage that applying governance principles reduces the problems associated with information asymmetry and makes the UFB’s less risky to invest in. However, attention should also be drawn to the disadvantages of corporate governance. The introduction of corporate governance will mean additional roles in audit, remuneration and nomination committees, new and more directors have to be hired. The non-executive directors will also have to be paid higher remuneration because of active roles they will be playing. Thus, introduction of corporate governance into activities of UFB’s will increase operational costs. Nonetheless, the benefits for an economy like Ghana cannot be overlooked [
It must be emphasised that in today’s business world the scope of family businesses has expanded to include some of the world’s largest companies and their economic weight remains massive. In terms of numbers of individual enterprises they account for a significant proportion of Gross Domestic Product (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 and are also believed to contribute about 70% to Ghana’s GDP and account for about 92% of businesses in Ghana [
Private businesses have therefore significantly contributed to Ghana’s sustained growth over the past decades. Among them a large fraction of businesses are organized around families. Family firms are characterized by concentration of ownership, control and often key management positions among family members. However, as they grow, they face the same challenges and pressures as any major corporation. To thrive, they must remain ahead of the competition through innovation, build strong relations with suppliers, develop a profound understanding of their customers and skilfully navigate through market changes. In addition, these businesses face distinct obstacles centred on family dynamics and expectations.
It is at this stage that the issue of Corporate Governance comes in. It requires that companies should be run in an efficient, transparent, responsible, profitable and fair manner. Transactions should be captured and recorded as true and fair record of trading and as much as possible, no window dressing, creative accounting or doctoring and massaging the figures or cooking them up. It requires that there should be no secret or off balance book accounts and that accounting records should be kept according to international financial standards or best practice. Directors are supposed to make statutory and voluntary disclosures about the company’s affairs for the sake of stakeholders. They should treat all stakeholders fairly and they have the fiduciary duty of ensuring that they use their sound knowledge to manage various risks that can occur and affect the business’ survival as a viable going concern. They are expected not to engage in any activity that will dent the image or reputation of the company.
It is expected that they obey the law and ensure that the legal obligations of the company are met. They have a duty to institute internal controls of checks and balances to avoid internal process failures. They have oversight functions of supervising all the functional areas and monitoring activities. They prepare the annual reports to the Annual General Meeting (AGM) and they should submit themselves to periodic appraisal and upgrade their knowledge and skills through training and self-development. They are expected to act as boundary spanners by integrating the internal and external environments of the company to avoid strategic drift.
The collective problem of business today is coming to be seen as a failure of corporate governance, meaning that far too many boards are failing to execute their duties responsibly, both collectively and individually. The critics are many and sustaining and fuelling the criticism is that fact that investors have better access to more detailed information than ever before, enabling them assess readily not only the performance of a company relative to its peers but also the lucrative agreements between boards and Chief Executive Officer’s, conflict of interest and a host of other issues that historically have remained within the confines of the boardroom, largely unknown to the shareholder group [
Despite this growing interest, there is a general lack of understanding of the principles of effective corporate governance in family businesses. Family businesses, it has been stated, form the basic building block for businesses throughout the world. The economic and social importance of family enterprises has now become more widely recognised. Internationally they are the dominant form of business organisation. One measure of their dominance is the proportion of family enterprises to registered companies; this is estimated to range from 75% in the UK to more than 95% in India, Latin America and the Far and Middle East. The manner in which family firms are governed is therefore crucial to the contribution which they can make to their national economies as well as to their owners [
A weakness of family business is the ambiguity that can occur between the different roles played by family members in the business. In this vein, it is easy to imagine that family members in senior positions sometimes need to clarify from which points they are thinking or speaking-are they being “dad” or “boss” or “majority shareholder”? [
This problem can further be compounded if a family business grows significantly to become a huge business entity or group of business firms. A founding owner, who is used to fulfilling many roles in running the business on his/her own, will probably have little interest in the setting of clearly articulated governance principles [
The essence of the significance of governance in a family business is captured in the following quote from Professor John L Ward [
“For the family-owned business, good governance makes all the difference. Family firms with effective governance practices are more likely to do strategic planning and to do succession planning. On average, they grow faster and live longer.”
From the above it may be noted that the consequences of a lack of governance can be severe. Due to notorious lack of effective communication in family business, the notion that shareholders who are active in the business withhold vital information from non-active shareholders can be strengthened [
The necessity for a good governance system in business is provided by King [
Nevertheless, directors can make good business judgement calls whilst practising bad governance. The converse of a bad judgement call supported by good governance also occurs which unfortunately, is sometimes equated to bad governance. However, in the case of a bad judgement call backed by bad governance, directors should expect a disastrous situation [
It may be realised that the above seems relatively complex and applicable only to larger organisations, however good governance is critically important to all businesses [
One weakness that bedevils many family business which was identified previously is the ambiguity of the different roles played by family members in a family business which can lead to confusion between the roles of management, family and shareholders [
Apart from role ambiguity, sound decision-making and governance structures supported by effective communication are often lacking in family business [
One body that sees to the adherence of corporate governance in business is the board of directors. The board should be made up of both executive and non-executive or independent directors. The elected directors assumes the obligation to represent the interest of the owners of the business thus undertaking a serious fiduciary responsibility. Effective representation therefore requires more than integrity since it also requires the competence to make sound decisions. The executive directors owes office or a place of profit under the company other than the office of the auditor. In view of that their judgment, when it comes to issue of corporate governance, may be clouded. To avert this situation business are allowed to have non-executive or independent directors who shall have the overall responsibility for the leadership and control of the company.
The responsibility for ensuring a company complies with good corporate governance therefore lies on the board of directors. However, for the executive directors this responsibility may well conflict with their obligations to make commercial decisions to develop a company’s business. Accordingly, much of this responsibility will fall on the non-executive directors. This paper therefore seeks to ascertain the role that non-executive and independent directors play in ensuring that family business adhere to good corporate governance and the challenges they face. In doing this family businesses in Ghana have been selected as case study.
The term “family business” has been used several times without having a clear definition of just what a family business really is. As Handler said: “to define family business is the first and most immediate challenge for the researcher” [
Researchers generally agree that family involvement in the business is what makes the family business different [
Glancing through the literature, it can be realised that from 1989 to 1999, 44 research papers each offered a different definition of family business [
The legal, governance, and financial frameworks of family businesses are not universal and therefore historians and management specialists have found definitions remarkably hard to pin down and this is well reflected in the literature. It is no surprise, therefore, that there is no general consensus among scholars as to what constitutes a family business in quantitative, qualitative terms or historical terms [
In a recent review of different definitions of a “family business” Brunaker [
However, after comparing and analysing the different viewpoints, it can be concluded that family business is when a family or several close families own all or major part of the ownership, and control all or part of the management authority, the enterprise is family business. In summary, there appears to be total agreement that a business owned and managed by a nuclear family is a family business. Generally speaking, the family must hold ownership of the family business in an absolute or relative advantage, at the same time family and family members have a certain degree of involvement in the business management process.
Family businesses therefore constitute the world’s oldest and most dominant form of business organizations. In many countries, family businesses represent more than 70 percent of the overall businesses and play a key role in the economy growth and workforce employment. Family-owned businesses account for two-thirds of the world’s businesses and generate most of the world’s economic output, employment and wealth. In the UK, the Institute for Family Business estimates that family firms account for 65 percent of all private sector enterprises and more than 30 percent of GDP. Studies by McKinsey, the Harvard Business Review and others show family-owned companies outperforming their non-family counterparts in terms of sales, profits, and other growth measures.
The Corporate governance literature affirms that corporate governance is one of the important factors influencing performance [
It can be defined as the ways in which suppliers of finance to a firm assure themselves of a good return [
Corporate governance is associated with the way firms are managed and controlled. There are many differences in what the underlying principles and methods applied are. These differences can take several forms. Most pronounced is the difference between the Anglo Saxon corporate governance system of “outsider control” and the European one of “insider control”.
In the Anglo Saxon system, managers are monitored by the external market and by the board of directors which is usually dominated by outsiders. In contrast, in most of the European and in the Japanese governance systems managers are allegedly monitored by a combination of financial institution, large shareholders and inter-corporate relationships that are maintained over long periods. Good corporate governance contributes to sustainable economic growth and development by enhancing the performance of companies and institutions and thereby increase access to outside credit.
The issue of corporate governance has received a lot of attention after the 2008 global credit crunch that culminated into bank failures and worldwide economic crises. However it must be stated that corporate governance covers a wide scope. Basically, good corporate governance includes holding regular meetings by the board of directors to discuss issues concerning the company, keeping minutes of decisions or written consents made by the board, making records of the actions available to all stakeholders, approvals, and critical decisions of the organization. It also includes keeping to the requirements of the law with regards to ensuring that filings are up to date. Corporate governance also includes keeping a close eye on the financial statements as well as the people producing those statements. It also includes encouraging an attitude of openness to differing perspectives within the board or among the executive team members. It may also include adopting various policies that guide the operation of the business: for example, conflict of interest policies; diversity policies; investment policies; and privacy policies.
Due to the nature of corporate governance and its requirements, some family business owners may believe that attention to corporate governance is unnecessary because there is general agreement on the operation of the business, and no one (other than, perhaps, the Internal Revenue Service) is looking over the shoulders of management to evaluate how things are done. Perhaps the business has operated for generations with management by consensus, expressed verbally and not committed to writing.
However, this assertion is wrong because circumstances can change: family disputes may arise; long-sim- mering resentments may bubble to the surface; the business may hit a rough patch; and creditors may be looking for opportunities to enforce claims against shareholders or directors of the company. It is not only when things start to go wrong that the level of attention to corporate detail should become a factor in family businesses.
Most small independent companies are family businesses; most family businesses are also small. In most small family businesses management and ownership coincide. In view of this the need for good corporate governance practices in family businesses cannot be underestimated. Smaller family-owned businesses are often operated with a degree of informality that is both natural and efficient. The thought is that “corporate governance norms” are for someone else’s business―the big guys with their in-house lawyers or big legal budgets. That attitude can be costly, particularly for a smaller, owner-operated business.
Family business governance encompasses both corporate governance, typically in the form of a board of directors, and family governance, typically in the form of a family council. Within each, there are many choices regarding degree of formality and levels of participation. There is no “one-size-fits-all”, and while there are certainly “best practices” for each, even the best of these requires adaptation in order to function well in each individual family and family business circumstance. Family businesses are fundamentally different in corporate governance from widely held public companies. This differences derive primarily from the discrete nature of their ownership. Family ownership concentrates control and allows greater agency in governance.
The role of the board of directors and in particular the non-executive directors in ensuring that organisations adhere to good corporate governance practices is worth mentioning. These non-executive directors plays important roles on the compensation, audit, nominating and other important committees to ensure that appropriate procedures are followed. This study therefore aims at investigating the roles of non-executive directors in non-listed family businesses in Ghana in ensuring good corporate governance practices in these institutions are adhered to at all times.
The board of directors is regarded as one of the most critical governance mechanisms in all and medium-sized family businesses [
The core roles of a well performing board of directors are to set the overall strategy of the firm; oversee the management performance; and ensure that an appropriate corporate governance structure is in place, including a robust control environment, sufficient disclosure levels, and an adequate minority shareholders’ protection mechanism. The amount of time and effort allocated by the board to each of these areas will depend on the size and complexity of the family business.
The board should make two contributions to the firm:
1) Overseeing the managerial activity (monitoring);
2) Offering expertise, knowledge and support to the management (resource provision).
While there is no single best structure of a family business’s board of directors, there is broad support for the importance of board independence, as the presence of independent directors on the board reduces the risk of appropriation of private benefits. The importance of board independence has stimulated a range of studies centred on the relation of board independence to firm-level and country-level characteristics. Once a family business has outgrown the point where the founder, or family partnership, can effectively manage the firm, the establishment of a board of directors becomes necessary [
The role that boards play, even in small family businesses, is attracting increasing attention within rational- choice frameworks. Agency theory and resource arguments from the strategy literature [
In the corporate governance literature, there are basically two theories commonly applied to corporate entities in general. The first is the agency theory which espouses the view that, in the context of a board, directors are seen as agents and managers of the institution whose vital task is to protect the interests of only the shareholders as residual owners of the company. They monitor the chief executive officer and the implementation of corporate strategies, determine the level of executive pay, plan for company succession, and provide overarching supervision. These activities and functions allow the directors to ensure that officers are performing their roles in alignment with the interests of the shareholders.
The second theory, the Stewardship theory, is keenly interested in ascertaining that the directors’ interests and motivations are aligned with the goals and objectives of the organization as a whole. This means that the steward’s interest is aligned with the stakeholders’. Under this theory, the board’s primary role is to service and advice, rather than to discipline and monitor, as agency theory prescribes. Where stewards are engaged to manage the affairs of the business. they emphasizes:1) values of service over self-interest; 2) responsibility by prioritizing long-term gains and values over short-term, myopic greed; 3) and develops good governance, clear working processes, open communications, and encompassing empowerment. Collectivist and stakeholder-oriented, stewardship fittingly applies to the family business model setting.
A board dominated by insiders or company-affiliated directors (also known as “grey directors”) has been suggested to be a correct match for a company practicing stewardship. However, this may not always be the case. More and more, family-run businesses, big and small, are revamping their board of directors by putting more independents than insiders or grey directors on their boards. A majority of family businesses should in fact welcome independent directors into the boardroom. Transparent processes, good governance, and an empowering atmosphere are the general results of placing independents in a board.
Independent directors can help family companies find a way to balance the dynastic expectations of a family with the needs of the business. Their primary purpose of a Non-Executive Director (NED) is to bring objective scrutiny on behalf of the shareholders. To that end, the importance of true independence of thought cannot be overstated. The best NEDs are reflective and thoughtful in their approach, ask the tough questions and offer considered advice based on sound judgement. They must maintain integrity and have strong principles.
Because independent directors have no existing loyalties to family members or preconceptions about the business, they are particularly well placed to provide advice on contentious issues such as board appointments, succession planning, remuneration and retirement. They should insist that the right thing is done for the company and must not be “followers of fashion”. They must have sufficient wisdom to perceive whether a course of action is morally dubious or financially risky. If so, they should exhibit the courage to disagree, and if the problems are systemic, to depart.
The independent directors balance their strong viewpoints with a supportive style in the boardroom. They are able to probe and challenge the executive team on thorny subjects without creating conflict. While asking the difficult questions is the primary task, they should also offer support and guidance on problematic issues. Maintaining a constructive and diplomatic style is important at all times.
Independent directors can play a vital role in business development, providing fresh perspectives, a strategic overview and opening up valuable networks for the business. They can also act as a sounding board for the non-family CEO and mentor young or aspiring family executives, passing on experience drawn from a wide range of companies and business challenges [
In companies where the founder is also the CEOs he/she may be too attached or too close to the enterprise, [
In other circumstances, a CEO may also overreach [
In situations like these the services of independent directors comes in needy, this is due to their detached relationships with the company and lack of any special or financial relationship with its members, and so they fill in the gap as objective and emotionally-detached arbiters. They help keep the balance of the ship and provide the captain with relevant information and corporate wisdom that will steer the firm away from disaster. Playing both the hull and the keel, they are able to perform an effective role as to where the company is sailing.
Known by some as strangers and outsiders, independent directors possess the qualities that a successful family CEO or entrepreneur may lack. They similarly have the prerogative to recommend an alternative course of action, redirect business goals, constructively criticize management programs, and advise on matters pertinent to corporate growth. They may also fill in any skills or networking gaps that hound the owners. Similarly, independent directors “deal with the pragmatic realities and idiosyncrasies of the family owners.” [
According to Howard Fischer and Jane Stevenson, “To create the ideal board for your company, you need outside directors who will hold you accountable. You should have the right mix of talents, personalities, and experience. Above all in a family company, you need people with high emotional intelligence.” [
In spite of the fact that independent and non-executive directors wielding tremendous authority or the potential to be very influential, they often face opposition from within the board and beyond it. Instead of being supported as steward-arbiters, they may be showered with scepticism and distrust, if not malice. Because of the familial and relational setting of a family business is not traditionally open or receptive to strangers. According Donald Jonovic, “They are used to playing close to the chest, so bringing in an outsider is like disrobing in front of a stranger for the first time. Taking that initial step is hard to do.” [
The empirical evidence of independent and non-executive directors and firm performance is mixed [
In contrast to the Financial Reporting Council (FRC) guideline, it appears that non-executive directors have a limited role in strategy development on listed boards; strategy sessions are infrequent and executive-led, often planned as annual or biannual events [
H1: Strategic formulation as a role of Non-executive directors has a significant positive impact on the performance of family businesses.
Agency theory suggests that the market for corporate control can curb the self-interested behavior of senior executives; if executives are underperforming, and existing shareholders do not replace them in a timely fashion, external investors can purchase the firm and replace both the board and the management [
However, a study by Long et al., [
H2: Selection and removal of executive directors as roles of Non-executive directors have a significant positive impact on the performance of family businesses.
For non-executive directors, the identification of a competent heir apparent not only smoothes routine CEO succession, but also provides insurance should anything unexpected happen to the incumbent CEO [
H3: Succession planning as a role of Non-executive directors has a significant positive impact on the performance of family businesses.
Independent and non-executive directors on unlisted boards have a greater involvement in the monitoring of financial information. UFB’s suffer from inconsistent information due to vague divisions of responsibilities, the absence of formal reporting systems [
H4a: Financial monitoring as a role of Non-executive directors has a significant positive impact on the performance of family businesses.
H4b: Management Performance monitoring as a role of Non-executive directors has a significant positive impact on the performance of family businesses.
This study aimed at investigating the role of the non-executive and independent directors in family businesses, paying particular attention to the experience they bring to such boards and their “policing” role. The researchers adopted the descriptive correlation method in the conduct of this study. However, both qualitative and quantitative research approaches were adopted for this study. The population of the survey constituted owners, managers and directors of family businesses. The respondents were given two weeks to complete their questions after which a follow up interviews were also conducted.
The questions were made of both open ended and closed ended questions to enable participants expressed themselves well. Six family businesses were observed for the current study and the quantitative survey results for this study collected a total number of 180 samples out of which 12 observations were discarded due to being improperly completed. Consequently, the total number of observations studied in this analysis were 6 family businesses and 168 people made up of family members and non-executive and independent directors were interviews and questionnaires applied to. Purposive sampling method which is also known as judgmental sampling method was used in selecting the businesses. This is the deliberate selection of the particular units of the universe constituting a sample on the basis that the small number so selected out of the large one will typically be representative of the whole. Purposive sampling enables the researcher to use his or her judgment to select cases that will best answer his or her research question(s) and to achieve his or her objective. Questionnaire was the main instruments used for the study. A total of one hundred and eighty (180) questionnaire were administered over a period of six weeks in the Ashanti Region of Ghana and one hundred and sixty-eight (168) were returned representing a response rate of 93%. After the data collection it was analysed using appropriate statistical tools. The questionnaire survey achieved a about 93% response rate. The data from all 168 responses were coded and transcribed which is the process of coding to convert responses into a form that a computer can analyse. The data corresponding to the values in the Likert Scale were entered for each statement in the questionnaire. It was then checked for accuracy, through three rounds of visual and hardcopy inspections. Graphs were used to represent the demographic characteristics, Pearson Moment Correlation Coefficients was used to find out the relationships between the variables under study. Finally, multiple regression using the enter method was run to find out the impact of the roles Non-executive directors on the performance of family businesses.
Five family firms were contacted for the current research. A total of 168 employees participated in the study. Out of the total of 168, 113 (67.3%) were males and 55 (32.7%) were females as illustrated in
The age group of the respondents is depicted in
Variables | N | M | SD | 1 | 2 | 3 | 4 | 5 | 6 |
---|---|---|---|---|---|---|---|---|---|
1. Performance | 168 | 34.81 | 9.81 | ||||||
2. SRE | 168 | 20.33 | 4.28 | 0.1 | |||||
3. MPM | 168 | 28.11 | 6.83 | 0.43** | 0.26** | ||||
4. SF | 168 | 23.33 | 5.26 | 0.20** | −0.1 | −0.4** | |||
5. SP | 168 | 25.63 | 3.36 | 0.05 | 0.1 | 0.04 | −0.03 | ||
6. FM | 168 | 38.65 | 8.43 | 0.37** | −0.01 | 0.38** | 0.21 | 0.05 | 1 |
**Correlation is significant at the 0.01 level (2-tailed). Note: SRE = Selection and Removal of Executives, MPM = Management Performance Monitoring, SP = Succession Planning, FM = Financial Monitoring, SF = Strategic Formulation.
Unstandardized | Standardized | Collinearity Statistics | |||||
---|---|---|---|---|---|---|---|
Coefficients | Coefficients | t | Sig. | Tolerance | VIF | ||
Variables | B | Std. Error | Beta | ||||
(Constant) | 9.629 | 6.523 | 1.476 | 0.142 | |||
SRE | 0.23 | 0.105 | 0.009 | 0.126 | 0.451 | 0.908 | 1.102 |
MPM | 0.403 | 0.098 | 0.343 | 4.098 | 0.000 | 0.667 | 1.500 |
SF | 0.006 | 0.124 | 0.004 | 0.047 | 0.563 | 0.800 | 1.250 |
SP | 0.137 | 0.119 | 0.08 | 1.152 | 0.251 | 0.981 | 1.020 |
FM | 0.257 | 0.078 | 0.244 | 3.284 | 0.113 | 0.843 | 1.186 |
Note: | R = 0.493 | R2 = 0.243 | Adj. R2 = 0.219 | F = 10.388 | p = 0.000 |
Note: VIF = Variance Inflation Factor, Predictors (Constant) SRE = Selection and Removal of Executives, MPM = Management Performance Monitoring, SF = Strategic formulation, SP = Succession Planning, FM = Financial Monitoring. Dependent Variable = Performance of Family businesses. Note: SRE = Selection and Removal of Executives, MPM = Management Performance Monitoring, SP = Succession Planning, FM = Financial Monitoring, SF = Strategic Formulation.
model derived 0.242 which indicated that, 24.2% of the total variability in the dependent variable in predicted by the independent variables. The Adjusted R2 also shows 0.219 which indicate 21.9% of the changes in the performance of family business can be explained by the model. However, about 78.1% of the variability cannot be explained by this model alone. The F statistic derived 10.388 indication that, the model has some explanatory power in predicting the dependent variable (F (5,162) = 10.388. The model gives the coefficients of the predictors in the model. It can be seen that, selection and removal of executive was not a significant predictor of growth of family businesses (β = 0.009, t (162) = 0.126, p > 0.05). However, Management performance monitoring significantly predicted performance of family businesses (β = 0.343, t (162) = 4.098, p < 0.05). Again, strategic formulation was not significant predictor of the performance of family businesses (β = 0.004, t (162) = 0.047, p > 0.05). Furthermore, succession planning could not predict performance of family business (β = 0.08, t (162) = 1.152, p > 0.05). Lastly, the financial monitoring of non-executive directors in family businesses could not significantly impacted on the performance of the family businesses (β = 0.244, t (162) = 3.284, p > 0.05).
We did not find a significant relationship between strategic formulation as a role of Non-executive directors and performance of non-listed family businesses in Ghana. Thus, Hypothesis 1 was not supported. Strategy Formulation is often considered to be the function of the board of directors especially when it comes to non-listed family businesses. Among the 168 respondents, 41% or 24.40% agree that non-executive and independent directors are actively engaged in strategy formulation. In the process of strategy formulation, there is always consultation between them and management team. As a result, they often work with various sub-committees when it comes to this task. In the process of strategy formulation, there is always consultation between them and management team. As a result, they often work with various sub-committees when it comes to this task. 60.12% denoting 101 respondents explained in an interview that they have nothing to do with strategy formulation at all since the management team formulates all the strategies. However, the non-executives and independent revealed that management team considers them as problem-solving machinery since they are only called in whenever there is a problem to be solved.
The remaining 15.48% representing 26 respondents disagreed that non-executive and independent directors are actively involved in formulating of strategies. According to them, formulation of strategies is a preserve of management team and the formulated strategies are only presented to the board for approval as well as sometimes meet to deliberate to solve problems which are beyond the management team. This is an indication of the fact majority of non-executive and independent directors in family businesses (unlisted) in Ghana are not involved in strategy formulation. These findings are not in consistent with results of [
According to [
It makes headlines when prominent companies fail to adequately plan for orderly succession of leadership. In recent years, several Fortune 100 companies have found themselves grappling with the pitfalls that leadership vacuums can create, with the turbulent global economy only compounding the impact of those challenges [
Distinguished economist Wharton [
The findings in this research are in contrast to the aforementioned literature as they do not support hypothesis 3. Consequently, there exist no significant relationship between succession planning as a role of non-executive directors and performance of family businesses in Ghana. The concern for non-executive directors in identifying a competent heir apparent is often relegated to the background by owners and executives of family businesses in Ghana. Succession planning of family businesses in Ghana is often characterized by severe internal political manipulations and power struggles especially among family members [
The study revealed the financial monitoring of non-executive directors in family businesses could not significantly impacted on the performance of the family businesses in Ghana. According to Gabrielsson and Winlund and Long et al., [
Studies by Shleifer and Vishny [
The effectiveness of the board or the lack thereof, have become a global concern. Corporate collapse, fraud cases, shareholders suit or questionable strategic decisions are attracting to the top decision making body of the organization, the board of directors (non-executive and executive directors). In an attempt to raise the standards of the corporate governance process, “codes of best practice” have been drawn up by several countries, global institutions and institutional investors’ organizations and adverse publicity is created for companies with what are seen as ineffective governance systems. The issue of good corporate governance is, therefore, an imperative for ensuring successful corporate performance. Building good corporate governance is a shared responsibility among all shareholders, each of whom may exert pressure to move an institution in a slightly different direction. In this regard, although the motivations of the various players are different, they can and should be mutually supportive. The first major step in creating good governance is for all players to mutually agree on the common corporate goals, which must be specific, explicit and consistent. The process will result in trade-offs and delicate balancing of various interest groups. However, once the goals are determined and the respective roles of the various players are explicitly defined, there should be an incentive structure and sanctions, which must be effectively monitored and enforced. This study examines the role of non-executive and independent directors in ensuring corporate governance in non-listed family businesses in Ghana as well as determine whether such roles enhance the performance or otherwise of family businesses. The findings in this study as already discussed can be summarized as: strategic formulation, selection and removal of executives and succession planning as roles of non-executive directors have no significant impact on the performance of non-listed family businesses in Ghana.
However, management performance monitoring as a role of Non-executive directors has a significant positive impact on the performance of non-listed family businesses in Ghana. Therefore, a generalization can be postulated based on the findings and discussion of this study that the presence of non-executive and independent directors has no significant impact on the performance of non-listed family businesses in Ghana. This generalization is consistent with conclusion of a study by Arosa et al., [
Corporate governance is about promoting corporate fairness, transparency and accountability. In the wake of unprecedented scandals and the erosion of investor confidence, it is very imperative to acknowledge the fact that adhering to good governance processes and principles can make a noticeable difference to how investors view an organization. The board of directors (non-executives and executives) are ultimately responsible for governance, risk and control framework. Indeed, if a family business (listed or unlisted) or any company is really to embrace the spirit of good governance, risk management and internal control, it is suggested that the drive and motivation needs to come from within and more specifically from the top of the organization. The focus of this research is to examine the impact of roles of one of the types of directors (i.e. non-executive and independent directors) on performance of family businesses in Ghana. It has been established in this research and other available literature that the mere presence of non-executive and independent directors doesn’t guarantee improved performances of businesses. Reiter and Rosenberg [
Ghana’s Companies Code, 1963, Act 179 has not caught up with current developments in the area of corporate governance such as the requirement for an audit committee of the board as well as separation of the roles of non-executives and independent directors and executive directors. The Ghana Stock Exchange Listing Regulations, which appear to somewhat more advance in terms of governance requirements, are applicable to only few listed companies. Moreover, due to weak surveillance systems and lack of enforcement of existing laws by the Registrar of Companies, the governance culture of enterprises has been extremely weak. In view of this, it is recommended that the appointment and terms of reference for non-executive and independent directors should be enshrined into the Companies Code, 1963, Act 179 and made mandatory for all for both listed and non-listed companies and businesses. The appropriate sanctions and penalties should also be made clear to all companies so as to deter them from flouting such provision. It is also recommended that existing laws and provisions should be strictly enforced to the latter by the appropriate supervisory and regulatory bodies in order to ensure good corporate governance which has long term effect of boosting the economy of Ghana as a whole. There should be massive public education to enlighten businesses on the need to adopt and implement good corporate governance practices.
Additionally, it is recommended that majority of the board members should be independent directors. An independent director should be independent of management and free of any business or other relationship that could materially interfere with―or could reasonably be perceived to materially interfere with―the exercise of their unfettered and independent judgement. The board should regularly assess the independence of each director in light of interests disclosed by them. Directors considered by the board to be independent should be identified as such in the corporate governance section of the annual report. The board should state its reasons if it considers a director to be independent notwithstanding the existence of relationships listed in.
Corporate performance is enhanced when there is a board (non-executive and executive directors) with the appropriate competencies to enable it to discharge its mandate effectively. An evaluation of the range of skills, experience and expertise on the board is therefore beneficial before a non-executive and independent director or any other candidate is recommended for appointment. Such an evaluation enables identification of the particular skills, experience and expertise that will best complement board effectiveness. Therefore, it is further recommended for the establishment of a nomination committee which should consist of ideally three members with the majority being non-executive and independent directors to carry out such mandate. The nomination committee should consider developing and implementing a plan for identifying, assessing and enhancing competencies of non-executive directors and other directors. This will help prevent selection of non-competent directors on the basis of nepotism and favoritism. The nomination committee should also consider whether effective succession plans are in place and constitute one if none exist in order to maintain an appropriate balance of skills, experience and expertise on the board. This will eliminate rivalry and in-fighting amongst family members who would want to be successors in their family businesses but lack the requisite knowledge and leadership skills to maintain and grow their businesses beyond the first generation. This will in the long run sustain and boost investors and clients’ confidence in the businesses.
In support of their candidature for dictatorship, it is recommended that non-executive and independent directors should provide the nomination committee with details of other commitments and indication of time involved. Non-executive and independent directors should specifically acknowledge to the company prior to appointment or being submitted for election that they will have sufficient time to meet what is expected of them. The nomination committee should regularly review the time required from a non-executive and independent director, and whether directors are meeting this. A non-executive director should inform the chairperson and the nomination committee before accepting any new appointments.
Good corporate governance ultimately requires people of integrity. Personal integrity cannot be regulated. However, investor and client confidence can be enhanced if the family business or company clearly articulates the practices by which it intends non-executive and independent directors and key executives to abide. Therefore, this study recommends that every family business or company should determine its own policies designed to influence appropriate behavior by both non-executive and executive directors as well as key executives. A code of conduct is an effective way to guide the behavior of internal stakeholders within the family business or company and demonstrate the commitment of the business to ethical practices. It is not necessary for a separate code for directors and key executives to be adopted by all organizations. Depending on the nature and size of the company’s operations, the code of conduct for directors and key executives may be stand alone or be integrated into the corporate code of conduct of the organization.
Furthermore, an audit committee must be instituted which must compose of only non-executive and independent directors to review the financial transactions of the family business or company. The audit committee should review the integrity of the company’s financial reporting and oversee the independence of the external auditors. Executive directors for that matter management should not shroud financial transactions in secrecy but avail every material information to the audit committee in a timely manner. The existence of an audit committee is recognized internationally as an important feature of good corporate governance. If there is no audit committee, it is particularly important that the family business or company should disclose how its alternative approach assures the integrity of the financial statements of the company and the independence of the external auditor, and why audit committee is not considered appropriate. The audit committee should include members who are financially literate and others who have an understanding of the industry in which they operate.
Corporate governance rules and practices cannot be separated from cultural and historical practices of the society. The family business or the company is a human response to the economic and social pressures in the generation of wealth and the relationship between the owners of capital and the managers of that capital. The central feature of corporate governance is a part of that response. It would serve little purpose, to attempt to find a complete global solution to corporate governance, which does not take into account the significant cultural and conceptual differences, expressed in the rules and practices on corporate governance in several jurisdictions including Ghana. Consequently, it is suggested that any corporate governance solution should reflect the cultural, social and economic background in which family businesses or companies are to operate. However, globalization of industry and cross-border transactions, are creating the need for a level of convergence of rules and practices such as the OECD principles, which establish certain basic parameters for good corporate governance [
This study is not free from limitations, which have prompted avenues for future research. Firstly, there is limitation on the possibility of generalization of the findings of this study to other countries since the data for this study were exclusively collected in Ghana. The authors therefore encourage fellow researchers to conduct similar study in other countries and regions of the world. This would deepen understanding about board and corporate governance dynamics on a larger spectrum. Secondly, this research explored the impact of presence and roles of non-executive directors on the performance of UFB’s in promoting good corporate governance. Further research could explore the relationship in other specific categories for example, in listed family businesses, in non-trading organizations, in government organizations, in the banking and financial institutions sector in Ghana. This would enable readers to have better appreciation of corporate governance roles in other types of organizations. This further research could address the similarities and differences of the roles in different organizations as well as consider the legal and regulatory requirements for different organizations in Ghana. Lastly, the data used for this research are cross-sectional in nature; therefore, a trend analysis or time series investigation into the practice of corporate governance by a company over a period of time was not possible. Fellow researchers may employ a longitudinal research design to explore whether practicing corporate governance in a company for a period of time leads to improved performance or otherwise.
AlfredSarbah,IsaacQuaye,EmmanuelAffum-Osei, (2016) Corporate Governance in Family Businesses: The Role of the Non-Executive and Independent Directors. Open Journal of Business and Management,04,14-35. doi: 10.4236/ojbm.2016.41003