professor bob garratt · 2019. 4. 14. · c professor bob garratt best practices for family owned,...

C

Professor Bob Garratt Best Practices For Family Owned,

Directed & Managed Businesses

April 10 2019

2 © GCC Board Directors Institute Foundations of Directorship © 2016

Family Firms Worldwide

• Over 90% of firms worldwide are family firms including

US and UK

• Family Firms with a 10%+ growth rate pa show:

(excluding small businesses)

• 84% Have a sense of agreed purpose and values as a

company

• 63% Aim to make significant steps in digital capability

• 55% Have a fully costed and documented strategic plan

• 22% Aim to earn the majority of their revenue from new

products and services Source: PwC Survey 2018

3 © GCC Board Directors Institute

The Family Governance System

WEF - A Primer on Governance of the Family Enterprise 2013

Family Governance

Ownership, Management, and Control

Intra-Group

Formal: • Family

Constitution

• Family

Council

• Family

Assembly

Informal: Culture

Norms

Values

Traditions

Legacy

Inter-Group

Formal: • BOD

• Holding Co.

• Operating

Co.

• Succession

Mgt

Informal: Family

Culture

Norms

Values

Traditions

Family Mission

Shared Beliefs and Core Values

4 © GCC Board Directors Institute

Family Enterprise


Family

Firm

Family

Family

Foundation

Family

Office

Family Enterprise Key Components


However

• Informal ‘Family Governance’ is giving way to more

formal, legislated Corporate Governance around the

world

• This is creating many new issues for family companies,

including some resentment within families

• But the political/social pressures are likely to grow

• So what can be done about resolving the two to keep

the best aspects of both?

See for example: The Wates Report on Large Family Businesses, UK 2018


International Pressures for Reframing Corporate Governance

• Public Distrust – not just of bankers but all organisations. Lack of

trust over competence and honesty of those who govern us

• Corporate Governance is not just tick boxes; it must focus on

ensuring the continuing health of the organisation by taking into

account the reasonable interests of the owners and the cost of

capital

• Currently it is failing internationally

• 4 International Trends:

- The Rise of Inclusive Capitalism to Restore Trust and

Avoid ‘Surveillance Capitalism’

- The Rise of the Global Middle Class

- Growing acceptance that People’s Learning

and Values are the key to effective organisations

- The urgent need to Re-establish Professionalism – to

rebuild trust and client sovereignty


The Family

‘Dear Octopus’

• Capable of huge support

• Or strangling you

• So how is the performance and development of the

family company debated and developed?

• The emotions of Ownership, Control and Wealth

Expectations are often strong in family companies


Key Differentiators

• Ownership is not the same as

• Directorship, which is not the same as

• Management

• But does The Family behaviour reflect this and so

differentiate between Ownership and Board

Responsibilities?

• e.g. are their Shareholder meetings as distinct from

Board Meetings?


Which Generation?

• First Generation - energy, autocracy, fierce focus

• Second Generation - growing: size, functional divisions,

personal divisions; resentment/frustration

• Third Generation - the company killers: diffusion of

ownership, loss of focus – unless the Family can agree

the thoughtful distribution of ownership, direction and

operational management to ensure the long-term health

of the business


The Elephant in the Room

What is undiscussable/always hidden?

• Ownership structure

• Control/Power Dynamics

• Trust

• Reward/Wealth (Effort/Reward Ration)

• Minority interests

Is there a case for a Family Parliament?


Difficult Questions

• Can you say “no” to big man/woman?

• Is “intelligently naïve” questioning possible?

• Can you have an issue put on the board’s

agenda?

• Can a director take independent legal advice,

paid for by the company?

• Can legal entities pursue their own strategies?

• How is ‘fairness’ defined in both wealth and poor

terms by the family?


How Perceptions of Fairness Impact Family Dynamics


Satisfaction

with family

decisions

Identification

with the family

Family conflict

Individual

fairness

perceptions

Fairness

perception

climate

Satisfaction

with family

decisions

Family

governance

How Perceptions of Fairness Impact Family Dynamics


The Four Levels of Board Maturity

• The Accidental Board

Do you mean that we really are directors?

• The Grumpily Compliant Board

Why do we have to put up with all this bureaucracy and cost?

• The Learning Board

Let’s take our roles and liabilities seriously for our and Society’s sake

• The Integrated Board

Let’s link the board and the organisation with Integrated Reporting and Inclusive Capitalism


Rebalancing the Three Classic Corporate Governance Powers

• The Owners

• The Board of Directors

• The Chief Executive


Definitions

Corporate Governance: A Board of directors must continuously strive to resolve the age-old dilemma of

‘How do we drive our organisation forward whilst keeping it under prudent control?’ = The Directors’ Dilemma (24/7 commitment = your homework).

From the Ancient Greek kubernetes – the steersman of a ship through the Latin gubernetes to Old French gouvenance to Middle English gouvernance and modern English governance.

Key second meaning is now found in modern cybernetics – the science and control of information systems – the systems of learning via continuous

feedback that validates the direction set by the board.

The Board’s rate of learning must be equal to, or greater than, the rate of

change in its environment – L > C


Duty to promote the success of the Company

Section 172 of the UK Companies Act 2006

1. A director of a company must act in the way he considers, in good faith, would be most likely to

promote the success of the company for the benefit of its members as a whole, and in doing so

have regard (amongst other matters) to –

a) the likely consequences of any decision in the long term

b) the interests of the company’s employees

c) the need to foster the company’s business relationships with suppliers, customers and others

d) the impact of the company’s operations on the community and the environment

e) the desirability of the company maintaining a reputation for high standards of business conduct

f) the need to act fairly as between members of the company


CMA Code of Corporate Governance

Article 21 The Board represents all shareholders; it shall perform its

duties of care and loyalty in managing the Company’s affairs

and undertake all actions in the general interest of the

Company and develop it and maximise its value.


The Learning Board – Basic Framework


Integrated Reporting

So the need is to create Integrated Reporting to satisfy

responsibility to all owners and stakeholders if corporate

governance is to have a credible future:

• Financial Audit

• Social Audit

• Natural Environmental Audit

And ensure that Inclusive Capitalism develops.

See e.g. Shell’s People, Planet and Profits annual report


Let’s Get Back To Basics

• Focus on the Purpose of the Board being to ensure the long-term health of the business

• And live to the Seven Duties of a Director

• Build these into the Memorandum/Constitution of your company

• And you can do away with around 90% of Corporate Governance Regulations and the proliferation of unnecessary laws


Order Change


The Learning Organisation


The “Good Learning” Organisation:

the idealised process of critical review and learning


The ‘Bad-Learning’ organisation


The Learning Board - Basic Framework


Policy Review Cycle


Board Development Issues

• Do we have agreed processes for Board

Selection, Induction, Development,

Review/Assessment/ Deselection?

• Are there plans for each board to have a

development plan for:

- Board Development

- Individual Director Development

- Business Model Development?


Symptoms of Corporate Collapse

• One-man rule

• A non-participating board

• An unbalanced top team

• A lack of management depth

• A weak finance function

• A combined chairman & chief executive role


Blockages to Effective Board Decision Making

• The Illusion of Invulnerability

• Collective Efforts To Rationalise

• Unquestioning Belief in the Board’s Inherent

Morality

• Stereotyped Views of Rivals and Enemies

• Direct Pressure on Dissident Board Members

• Self-censorship of deviation from apparent group

consensus

• A Shared Illusion Of Unanimity

• The Emergence of Self-appointed “Mind Guards”

GCC Board Directors Institute

GCC Board Directors Institute Financial Emirates Tower | South Tower Office 2201 | DIFC – Dubai | UAE Email: [email protected] Call: 00971 (0)4 554 7967 Website: www.gccbdi.org

professor bob garratt · 2019. 4. 14. · c professor bob garratt best practices for family owned,...

Documents