I was recently reading a Times of Malta article on publicly listed equities on the Malta Stock Exchange. It highlighted some reasons why Maltese Investors shy away from buying equities (shares). All the examples given find their root cause in Corporate Governance, or in this case, the lack of it. The topic of corporate governance is always a hot one. All stakeholders (shareholders, employees) are always demanding improved governance. Normally the focus is on public companies, with the push being for strengthening their boards of directors and developing more responsive shareholder relations. But for the past years, I have been harping on the need for a culture change, so that EVERY family business, whether publicly listed or not, notwithstanding its size, moves up the ladder towards better and more professional corporate governance. This is why amongst various efforts, we at EMCS Academy, have launched the unique accredited course in how to lead a family business.

The proper governance of a family business is often more complicated than for non-family owned companies because of the central role of the family that owns and typically leads the business. In a family business – the business, the family and the ownership group all need governance.

In my experience of constantly working with family businesses of all kinds, it is clear that every business able to improve governance reaps lasting benefits. If you are in any leadership role of a family business, you need to learn the basics of governance and apply the best practices that exist in family business governance.

Effective Governance means generating a clear direction, values to live by or work by and well-understood and accepted policies that tell all organisation stakeholders how they should behave or what they should do in certain circumstances. Effective Governance is also about bringing the right people together at the right time to discuss the right (important) things.

Please believe me when I say that no family business can be effective for long without doing these things. Ultimately the effectiveness of any governance system rests on these outcomes. As One much bigger than all of us once said “A tree is to be judged by its produce”, so is corporate governance. If your family business is missing a clear sense of direction, clear values, well-understood & sensible policies, does not assemble the right people in a timely way to discuss and decide the big & strategic issues facing your business —then your corporate governance system is flawed or completely lacking. In many instances what I find in various family businesses is a complete lack of governance or for it to be way too informal to really be effective. Given how difficult it is for most people to confront especially sensitive issues and to plan ahead, some degree of formality often helps people focus on their issues, work toward their goals, and resolve their differences. What is clear in my work with family businesses is that a few well-composed and well-managed governance structures greatly help the chances of that family business being effectively governed.

The overlap among the three groups often leads to differing points of view among individuals depending on their location in the three circles. For example, family shareholders not employed in the business often have different views about the proper level of dividends than do their relative owners who work in the business. Both viewpoints are typically legitimate and must be reconciled in a respectful way to set direction for the enterprise and preserve harmony in the family. To effectively manage business, family and ownership concerns requires communication and decision making within and across the family, the business, and the ownership groups. However, unfortunately, many family businesses employ dysfunctional and short-sighted approaches to handle tensions. These approaches include exclusion and secrecy—keeping some family members or shareholders out of conversations and keeping too many secrets from employees, owners or family members OR Divide and conquer—relying on the support of some allies and excluding others from information and decision making

These methods of addressing business-family-ownership tensions can provide some short-term relief but rarely resolve issues and predictably intensify them. Effective governance does not eliminate tensions in family businesses but it can reduce tensions and improve the effectiveness and harmony of these systems by clarifying family-business-ownership needs and managing the conversations needed to agree on goals, values and policies.

So, to conclude, good corporate governance contributes three fundamental ingredients for family businesses to function well:

• Clarity on roles, rights, and responsibilities for all members of the three circles;
• Encourages family members, business employees, and owners to act responsibly;
• Regulates appropriate family and owner inclusion in business discussions.

To achieve this, in my opinion, the first step has to be to work on the needed governance structures, whereby the membership and functions of these governance structures need to evolve as the business, family, and ownership groups change over time. But governance structures is whole new subject for another day.