Share |

Good governance, family style

Otis W Baskin is an associate of The Family Business Consulting Group and professor of management at The Graziadio School of Business, Pepperdine University.

This year's annual meeting of Wal-Mart shareholders on 6 June may have ushered in a new era for the world's largest retailer. A son-in-law, Gregory B Penner, was named to a board seat reserved for family members. Penner has long been seen as an understudy to his father-in-law, S Robson Walton, who has been chair of the Wal-Mart board of directors for 16 of the 30 years of his service. Penner has held several major executive positions in the retailing giant and has recently managed the Walton family investments. Speaking to The Wall Street Journal, a Wal-Mart spokeswoman explained, "the Walton family is preparing the next generation for responsible ownership in the company and appropriate representation on the board." Yet many have expressed surprise that someone who is not a direct descendent of company founder Sam Walton would be appointed to a board seat reserved for family.

The Walton family illustrates an important reality: in maintaining a family's values and vision for their business, establishing good governance is more important than bloodline. As the Waltons move into their third generation of ownership they face challenges and opportunities common to family businesses, such as maintaining control of a successful business in the family while allowing the business to attract the best leadership it can in order to grow the value of their mutual asset. Too often business founders and their families despair at the thought that no family member may be qualified or interested enough to serve as CEO in the next generation. For many it is impossible to see how a family business can remain so without a family member at the helm.  

The Waltons provide an example of how good governance processes can link a family and its business together across generations while allowing children growing up in the family to have their own aspirations and make individual career choices. The link between an informed and engaged ownership group and a board of directors committed to the best interests of the shareholders can be a powerful combination to keep the business aligned with the family's values and vision while allowing it to grow in value for future generations.

Too many families give up real control of their family businesses because they do not see any alternatives when there isn't an agreed upon heir to the CEO position. Some sell out completely, leaving a legacy of guilt and the reality that no other investment will be as productive as a good business well managed. Others take a back seat as significant, but no longer controlling, owners content to live off the fruit of their investment. Often they realise too late that they can no longer uphold the values of their family in a business that will forever be associated with their name. Walter Hewlett's opposition to the HP/Compac merger and the failed attempt of the Rockefeller family to force ExxonMobil to accept a more environmentally proactive set of policies are examples. Ownership control linked through good governance processes and policies to the board of directors may be more important than a family CEO. 

Click here >>