Page 86

The passage says, Legal system in US and UK have better for protecting the minority share holders

and they help in creating a diverse shareholders

not limited to family owned business

If The legal laws are not structured to provide protection to minority or diverse group, it will be difficult
for other new parties to enter the business, and the power will retain only with the family owned
business

this is the legal environment they are talking about

page 87:Advantage

The first advantage is that family owned businesses have less agency problems.This means that when
the business is owned and managed by the same members of the family, they are bound to have less
conflicts. Thus, with no conflicts arising between the management and the owners there is better
environment in the firm.

Information asymmetry refers to the the problem that arises when some people have some part of the
information and others have a different information.basically there is not symmetric information flow
throughout the business. But when it is family owned. All members are of the same family. Thus they
are more likely to discuss even the minute set of information be it related to changing market, prices or
so on.

Opportunistic behviour tends to be more active in case of partnership than in family owned.As
everything is going to the same family, profits or losses. So there is less chance of any member working
in their self-interest.

Point 4 is simply easy, as all the members from owners to managers are of the same family they tend to
have more trust on each other. In comparison to someone who is hired on a fixed salary.

The last part says less management is required. This is because in a family owned business all the family
members have a set of responsibilities to fulfill. Also the scale of operations is not very large. There are
not many segments of operations. thus, we need less management.

page 87:This The Problem Of Family Buiness

1. it says, within the family, there will different opinions on how to do, and it can affect the
business short and long term development
2. its says, each generation will have different views on ,on how business will be run and also about
the sibling rivalry, on who should have the power to run and develop the business
3. it says a forum should be set up, where all can express their views, at early stage, we need
forum so everyone’s opinion can be expressed( early stages means when the family business has
started)

Point 1 deals more with specialisation.

Since the operations are managed between family member they may not be handles with specialization.

So it may affect the day to day business as well.

So if we hired specialized workers in place they may be better able to do the job in less time.

Point 2 deals with age gap or the generation gap.

As we know old people then to have a different perspective towards matters in contrast to the young
blood.

The elderly may be reluctant to change ways in order to cater to the changes in the market.

Thus, it may lead to a clash of interest between the generation's.

The next one I guess is talking about a forum or a board where we can discuss the matters of the
business. It may not always be good to discuss it over the dinner table. Right?

It mainly says that we must have a set protocol to follow in the business from the start.

This will make flow of information even more perfect.

They all work together to ensure better business.

Page 90: QCA GUILDLINES FOR EFFECTIVE CORPOARTE GOVERNANCE

So firstly the main reason behind the guideline is to maintain trust and and clear picture to all

Secondly the main four elements are

Chairman responsibility towards the company the board members being as a team , best practices and
non-executive directors and also independence of the members should be according to the capability
and not according to the connections.

PAGE 88

we will talk about the advantages of corporate governance . first one is that when there is corporate
governance then there is a proper organisation and making decisions is really easy and takes less time .

secondly members on board can take sensitive decisions easily like succession.

As deciding on the area of succession is really important that after the current person is unavailable to
take charge who would be present also succession planning would raise external equity investment as
the shareholders would be interested in knowing who would be th e new successor

third is the appointment of non-executive directors

as here the shareholders would take keen interest .

as the non executive director would be independent and would be selected on the basis of knowledge
and experience they can bring to the family . here the example is given of cadbury that how good
governance helped it to grow over these years .

here the example is given of cadbury that how this company is fulfilling all the points to achieve all the
growth

how corporate governance helps structure a family firm?

this company has laid down three points for growth

1st is to recruit and retain best people

2nd is develop a culture of trust

3rd is to have an efficient organization structure

and by good governance all the above requities will be fulfilled .

here there are four stages the first on family assembly where the family members can meet and discuss
about the ideas and views about the business

the second stage is family council where as in the family grows due to marriage and new generations
then family council is maintained for i t

once there are thirty above members in a family than a family council is made necessary

third stage is the stage of advisory body where the family realtion are not so well and the business is not
running in the same manner so here to control the situation an advisory body is made

it also includes nonexecutive directors

as well

and the last stage is board of directors as it includes outsiders as well

Page 91: Firm Level Characteristics

Here the difference between small and large firms are discussed

The small firms are simple and has concentrated leadership.

While large firms, it’s diffused, meaning, more people are in control i.e., board

The next part, is direct

It goes into detail, how in small firms, the governance structure is

i.e., combined chair/ ceo, few NEDS (non-executive directors), and longer contacts for directors

PAGE 91: it says, the NED is important, for their opinion on strategies, appointment, etc.

and that small companies have difficulty in finding sufficient NEDS.

But the need for NED is important for small companies as well as large ones

and the NEDs should be selected through a formal process and appointed by the board as whole