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New code with focus on family business

Jozef Lievens  is a professor at the European University College Brussels and executive director of FBN Belgium. He was an active member of the commission which prepared the Buysse Code.

The new Belgian corporate governance code for non-listed companies features a special chapter devoted to family businesses – a first in Europe and, perhaps, the world. Jozef Lievens outlines the recommendations of the Buysse Code

As in other countries, Belgium has seen intense activity in recent years on the subject of corporate governance. The Lippens Code for stock exchange-listed companies was published in 2004. This Code is organised around nine fundamental corporate governance principles and uses the internationally accepted 'comply or explain' principle. Despite the fact that in Belgium a significant number of family businesses (Solvay, UCB, Bekaert) are listed, the applicability of the Lippens Code remains quite limited for family companies, since the vast majority of Belgian family businesses are still in private hands. In order to offer these companies a guideline on corporate governance an initiative was taken in 2005 – under the chairmanship of Baron Paul Buysse, president of Bekaert and of the recently-created Belgian FBN chapter – to draft a new Code specially designed for non-listed companies. An estimated 300,000 companies fall within this Code's scope of application.
 
The functioning of an active board of directors plays a central role in the Buysse Code, which is in line with other international codes. However, the Buysse Code includes a separate chapter devoted to the so-called 'governance of the family' and addresses the important tools for achieving family governance as the family forum and the family charter.

The Buysse Code recommends creating a family forum in certain family businesses. For example, such a forum would be useful if the shares are held by several family members or several branches of the family or when several generations are involved with the company in various roles (active or otherwise). The family forum serves as a platform for communication, information and consultation of the family with regard to the family business.

It is advisable to thoroughly discuss and reach agreement on who is authorised to form part of the family forum, how the chairman is designated, what subjects may be discussed there and what authority the body has with respect to weighty decisions. An external intermediary should also be considered.

The Buysse Code also recommends that the family establish a 'family charter' – a set of rules for family members. It recommends establishing rules relating to the family values and vision; the ownership of the family business; the financial objectives of the family; careers in the family business; compensations attributable to family members active in the family business; the governance of the family business; the family governance; the management of the family business; the role of non-family members in the family business; communication; conflict resolution arrangements; training of family members; philanthropy and sponsorship.

Involvement of shareholders
The professionally-managed family business benefits from clarity about just how much playing room exists for developing and implementing company strategy. This cannot be achieved without involved shareholders. It demands a long-term vision from family and shareholders about the direction in which the company should develop, the desired culture of the family business, their readiness to take risks and their degree of involvement in the company.
 
The board of directors and the management must take well-targeted steps to promote the involvement of all shareholders in the company. The Buysse Code recommends holding a consultation between the shareholders, the board of directors and the management at least twice a year, or more if important developments occur, for example a strategic reorientation, a major takeover, sale of parts of the business or company transfer.

Succession
The timely organisation, proper preparation and careful accompaniment of a succession is one of the most crucial processes in the family business. This process must be addressed in a professional manner, with the best interests of the family business serving as the decisive frame of reference. A thorough, step-by-step succession plan is essential. The Buysse Code recommends giving control of the process to the board of directors, and they shouldhave a significant advisory role in assessing succession candidates. There must be a solid basis of support for the successor within the wider family circle and the successor should have the assent of the shareholders.

Conflicts
The Buysse Code also addresses the manner in which conflicts are resolved. Conflicts between family members must be discussed openly. There must be a mechanism for effectively resolving long, drawn-out conflicts.
 
An outside chairman of the board of directors who has the authority and confidence of all parties can also be helpful. If necessary, a professional intermediary may be required. The Buysse Code recommends first identifying potential sources of conflict and then taking contractual or by-law steps for a rapid resolution.
 
The Buysse Code generated a great deal of interest at the recently held FBN Summit in Brussels, and it is hoped that the focus on family business in the Buysse Code will soon be emulated in many other countries.  

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