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Family Business Governance
Family Business, First Edition, by Ernesto J. Poza Copyright © 2004 South-Western/Thomson Learning
Governance Can be provided for through classes of voting and nonvoting stock Can be enhanced by contributions from Boards of directors/advisory boards Family councils/assemblies Annual shareholders’ meetings Top management teams Can provide essential help in governing family–owner–management relationship 8-2 .
Governance Structures of Family Business Ownership Board of Directors Shareholder Meeting Family Assembly Family Council Top Management Business 8-3 Family .
Board of Directors/Advisory Board Board of directors is a legal entity Membership on board often restricted to family members to control liability Advisory board with independent outsiders complements internal board of directors 8-4 .
Makeup of Family Business Board Small group—five to nine members Majority should be independent outsiders Should not be friends of family Should not be business’s service providers No managers other than CEO Successors only when succession imminent At-large family representation 8-5 .
or they may leave the board 8-6 .Recruiting Board Members Best candidates are successful peers Candidates should be able to work on a team Staggered terms and term limits encourage fresh perspectives Attractive compensation signifies importance of board to CEO Board members should be allowed influence.
Board Meetings Four to six times per year Half-day meetings preferable One board retreat per year if possible 8-7 .
broader perspective to business issues Board members bring with them network of contacts Board makes top managers accountable for their actions 8-8 .Benefits of Board to Family Business Outsiders provide unbiased objective views Board members bring fresher.
Family Councils Family council is governance body focusing on family affairs Family council serves family as board of directors serves business Family councils Promote communication Provide forum for resolution of family conflicts Support education of next-generation family members 8-9 .
Family Philanthropy Liquidity Fund CEO Top Management 8-10 .Contributions of Board and Council Shareholders Family Council Board of Directors Family Office Family Bank or Venture Capital Co.
communication.Family Assembly Annual assembly operates in conjunction with family council Useful when size of family prevents all from sitting on family council Another vehicle for education. and renewal of family bonds Creates participation opportunities for all family members at least once a year 8-11 .
Annual Shareholders’ Meeting Legally required by corporate law Opportunity for review of company performance Board of directors elected and other issues voted on at this meeting Only shareholders attend Usually only once a year. but special meetings may be called as necessary 8-12 .
Top Management Team Nonfamily executives in key positions on top management team ensure business health Nonfamily managers differentiate between family and management issues Nonfamily managers build confidence in governance of corporation 8-13 .