MANANSALA, Aaron Cien P.

BSA-2A

Governance

Strong corporate governance is the bedrock of sustainable performance by companies over the
long term. This is even more important as the fast-changing business landscape continues to
present new and ever more complexities for boards and senior management.

Every good company that has gone public and those who have not gone public are familiar with
the term good corporate governance (GCG) which includes several aspects so that a company
can be categorized as a company with good governance. Good corporate governance means
that the processes of disclosure and transparency are followed so as to provide regulators and
shareholders as well as the general public with precise and accurate information about the
financial, operational, and other aspects of the company. In practice, several companies that
have gone public or listed on the Indonesia Stock Exchange (IDX) have followed the rules
regarding GCG with Sarbanes-Oxley as a reference. Companies that implement GCG can be
seen from the principles they apply, namely the principles of transparency, accountability,
responsibility, independence, and fairness.

Case Study

In Indonesia, not all companies are publicly listed companies on the IDX, there are a lot of
companies that are family companies that in their company operations do not implement
appropriate and effective corporate governance practices. The need for GCG is also felt by
family businesses (Gnan et al., 2016). They started as small-scale companies and developed
into conglomerates with various lines of businesses. They are defined as companies in which
family members, either founders or descendants, continue to hold positions in top management
and/or on the board, or they are the largest shareholders. It is also stated that more than 80% of
business companies in North America and Western Europe are family companies. One of the
most significant problems identified with family businesses is the continuity of the business. So
that CG is deemed necessary to be implemented by companies.

Answer and Recommendations:

Governance is a major area of study that has attracted an increasing level of attention within the
privately held small business and family firm domains. Gibson et al. (2013) used research
frameworks from several financial and management disciplines to enable the identification and
analysis of difficulties arising from making simplistic assertions based on large firm
considerations about the benefits and prescriptions for good governance activities in family
firms. These difficulties exist primarily because governance in most family firms is driven by a
different set of structures and processes from those that apply to large firms. While the
theoretical perspectives of the large firm governance literature may hold in family firms, the
prescriptions need to be viewed with a different outcome in mind.
Researchers assessed how the adoption of corporate governance structures affects the
performance of SMEs. The results showed that board size, board composition, management
skill level, CEO duality, inside ownership, family business, and foreign ownership have
significantly positive impacts on profitability. Corporate governance can greatly assist the SME
sector by infusing better management practices, stronger internal auditing, greater opportunities
for growth, and a new strategic outlook through non-executive directors. Corporate governance
structures influence the performance of SMEs.

Business continuity is particularly important for the leaders of family enterprises, because when
a family business is put at risk, so is the family legacy. While many family businesses are now
taking the time to implement more rigorous crisis management plans, too many are ignoring one
of the most fundamental business continuity risks that a family business can face: the
inevitability of ownership and leadership succession.

Founders and leaders who have developed successful family businesses over time want to
know that their business and their family will thrive after they’re gone—that the legacy they’ve
created will neither be eroded nor lost. To manage the transition of leadership successfully,
business families need to work together to define their family values, the overarching purpose of
their business, and the legacy they want to create. They can then use this collaborative
knowledge as a kind of “North Star” going forward. While family businesses will evolve and
leadership will change, a shared set of values and a shared purpose and vision can build a
strong bridge between one generation and the next.

Here are some recommendations on how to secure or help your family legacy when you are
doing a business:

Determine which family members will be included

When engaging with family members, transparency and consistency are key. This means
drawing a line as to who will and who will not be included in discussions related to the family
business. Different families will draw different lines in the sand; for example, some may choose
to include spouses, while others may not. Regardless of where the line is drawn, transparency
and consistency will help enhance trust and improve any discussions and outcomes.

Gather individual perspectives

And, It can be incredibly valuable for family members to engage in one-on-one conversations
with a third-party advisor before coming together as a group, because these conversations allow
them to share their opinions without fear of reprisal from other family members. Additionally, the
third-party advisor can subsequently share themes from these separate discussions in a group
setting, leaving them unattributed to preserve anonymity.
Individual discussions can also be a good way to gather unfiltered opinions from younger family
members. Millennials and younger generations may have more career options than their
predecessors and may not feel obliged to take over the family business. By understanding what
matters to these generations, founders and business leaders can better adapt and transform the
family business to make it more appealing to next-generation family members.

Working together to help business families succeed

One successful way to help business families tackle transition planning is to start by determining
what matters to the family most. Rather than focusing on “What if?” scenarios from the get-go,
bringing family members together to build agreement on their values, their business purpose,
and their legacy can help family members of all generations unite around a common vision—
something really positive! Family businesses and their advisors can then use this information to
guide decision-making on other sensitive topics.

Facilitate family discussions by starting with strengths

Family business founders and leaders should use the information gathered during individual
discussions as a basis for bringing family members together to develop a common
understanding of the basic building blocks of values, purpose, and legacy. By identifying areas
of alignment, founders and leaders can create a sense of unity and collaboration among family
members and identify guiding principles that can then be used to help address areas where
views are more divergent.
Business families may also want to use group discussions to foster understanding on other key
issues unique to their situation. For example, families with an operating business may want to
discuss whether the next generation is interested in retaining the business and whether they
understand what business ownership entails, while families with wealthy assets may want to
discuss expectations around dividend distribution policies and philanthropic priorities.