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Invisible governance

Wagner Luiz Teixeira focuses on the importance of invisible governance to the business-owning family

Corporate governance has become a focus and has drawn efforts from enterprises of various industries looking for ways to meet market demands. This is mainly put into action during highly-recommended events, such as establishing the board of directors.

Although they are paramount for family-owned companies, the framework and mechanisms that form corporate governance are not enough to ensure the continuity of enterprising families. It is important to adopt frameworks and mechanisms of ownership governance to ensure that family partners, who control the capital and wealth, participate and are represented in the decision-making process.

This governance is invisible in the eyes of the market but is absolutely paramount. Lack of corporate governance can jeopardise all company management initiatives including the work of the board of directors itself.

Ownership governance in family-owned businesses may lead to discussion forums. However, we must first understand that the board of directors is not a suitable setting for conflicts relating to family owners and as they can distract the board away from its goal. Furthermore, we must understand that the practice of invisible governance starts at home, with each enterprising family member looking at themselves as a partner and not as the owner of the business, thus respecting the legitimate communication channels, negotiations in the decision process, and borders between the roles carried out by different family or non-family members.

Family and ownership governance deal essentially with issues relating to the family and wealth and will demand ongoing dialogue with the company's top management team. The level of visibility of such forums varies from family to family, but usually ends up being what is necessary and feasible to each family. Despite its high impact on decisions, the work is one of silence, not only in the family level but also in the wealth and company level.

The development of governance framework
There are many forums that may compose this framework of invisible governance. Each case demands a specific solution as both the needs and the straightforward conditions for implementing a certain forum vary from family to family.

It is very common to see enterprising families start their path towards building a framework of governance through a council that has already accumulated many roles. Later on, as the ownership matures and the family grows, the opportunity for the development of a more comprehensive and complex framework emerges.

Through exercising ownership relations, the enterprising family will increasingly know how to separate topics related to family, wealth and business. As topics are separately addressed, particular responses attend each specific need. One is the family council, which has the link with the family office and the council of heirs.

When looking at issues related to the control of the business, risks and destination of capital, the ownership council surfaces. Linked to this organ, there may be an advisory board comprised of reputed individuals with expertise and experience in various areas that assemble together to discuss impressions and assessments with shareholders, for instance, to talk about the course of the world economy. Advisory boards may also be formed and linked to other organs, always focusing on broadening the capacity of reflection upon the subject at hand and its environment.

We must highlight the fact that these frameworks do not stiffen problem resolutions in the family level or in the company management level. If the governance model becomes a barrier to the decision-making in any level, something is probably wrong. It must be optimised through the demand for results and the continuous education and representation of family members in the role of shareholders.

Hence, it is essential to keep an eye open on the relationship between the decision forums. The ownership council relates to all other decision forums of the enterprising family. Members are chosen in the family assembly as are members from the family council. Between these two councils, it is not common to see a hierarchy relationship as their activities are different and complement each other.

Once capital controllers are organised in the ownership council, they may vote as one party in the shareholder's assembly. This is the sovereign legal organ of a company, bringing together shareholders who are either family members or non-family members  and act upon its decision making.

It is also the ownership council's duty to establish guidelines for the board of directors as well as to recommend representatives to it. Through this formal channel, these guidelines must reach top management – in other words, its managing board. That is how the controlling family can have the best possible influence on the future for the never-ending continuity of their wealth – carrying out an invisible work that will bring forth tangible return.

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