Alden Lank phan Schimdheiny professor of Family Enterprises Emeritus at IMD, Lausanne and former executive director, president, chairman and current honorary board member of the FBN.
There have been one too many high-profile scandals where corporate governance is concerned. Were they preventable? Alden Lank thinks so
In the wake of the many recent corporate scandals where the rights of shareholders were trampled by predatory executives and ruthless controlling owners, the spotlight has been on the board of directors. The oft-heard cry has been: "Where was the board while the value of our shares was being plundered?"
While there is little doubt that many boards (including those of family enterprises) have been found lacking and in need of urgent reform, owners should take a close look at themselves and ask: "If we had been truly responsible owners, could we have reduced or prevented the negative fallout from these failures in corporate governance?" I believe the answer is a resounding 'yes'.
First and foremost, truly responsible owners must set up the parameters within which their business is to be run. Which fields of activity are to be allowed? What ethical rules will be applied as the enterprise goes about its business? What levels of risk and debt/equity ratios are acceptable? What do the owners desire in terms of growth, return on investment, net profit, dividend payout ratios etc?
Responsible owners should then require their board to honestly report back to them on pre-established dates, how well the company is doing in regard to the specified parameters. The board should know that it will be held strictly accountable for ensuring that their guidelines are being honoured.
Responsible ownership requires that the board be told what its duties are compared with those of management and the ownership group. Overlap must be avoided to minimise conflict and confusion.
Owners, typically, elect the directors so it is their responsibility to legislate the rules in regard to the election (and dismissal) of directors. These include the criteria that must be met to be a member of the board whatever the source of the candidate (family, management or external). Owners should also decide (after appropriate consultation with the board and other relevant stakeholders) on the functioning and structure of the board (number of meetings, officers, committees etc).
Responsible ownership demands that current and future family owners are educated and trained so they can effectively undertake their roles as responsible owners. Lastly, opportunities for regular discussion and debate between owners (under pre-authorised rules for handling conflict) must be created so as to maximise the probability of speaking with one voice before the board, top management and the rest of the family.
Family Business Network 16th Summit in Brussels
The Family Business Network has created the tradition of having an annual world event where family businesses can meet to exchange, learn and network with peers and experts. Over the last 15 years, the successive world events have offered many business owning families new ideas and concepts on managing and owning a family business. The 16th annual event will build on the strengths developed over the years, but it will also have many new elements.
The Family Business Network has grown into a worldwide network with a large membership of chapters (national or regional associations of family businesses) and business owning families. In 2004, the election of a new Board, consisting entirely of family business executives and governors, marked a new phase in the development of the association: a network by and for families. This also challenged the Programme Committee of the 16th Annual Event to come up with a programme consistent with FBN's new strategy. A programme that meets the needs of business-owning families, which is designed in close cooperation with FBN chapters, and brings together the various stakeholders and experts. The event is an opportunity to exchange views on best practices, bring new ideas and concepts to family businesses and gain a better awareness of the unique characteristics and challenges of family businesses among the various stakeholders such as policy makers, politicians, researchers, educators, service providers and others.
The next Annual event will be held in Brussels, Belgium on 14-16 September 2005. A new name has been created to emphasise the new format of the annual event: The Family Business Network Summit: a truly international event in content, speakers and participants. The Summit includes the FBN-IFERA World Academic Research Forum and the Next Generation Forum. For the first time there will be a dedicated day for family businesses only. In a private and intimate setting, participants can learn from other family businesses with dedicated on-site live cases and panel discussions with family business members. There will also be an open day for family businesses, their close advisors, academics and policy makers, to discuss the state of the family business community and to exchange views on new developments.
Family composition is changing as a result of nuclear family 'decomposition'. Families are more widely spread around the world, as younger generations tend to seek their luck abroad for periods of time. This requires new ways of preparing and involving the next generation in the business.
The debate on corporate governance has led to new trends and legislation. The biased focus on shareholder's value turned out not to function so well because of the short term orientation and, in some cases, the emphasis on individual and personal gain above the companies' interests. There is an emerging trend in society that shareholders' value is being replaced by stakeholders' value.
Family businesses – by nature – tend to have a stakeholder orientation. If the relationships with the various stakeholders are not good, it will reflect not only the companies' performance, but the family's reputation as well. The key to strategic decisions, which balance business and family interests and which drives the family business culture, is held by the owners. However, with the changing nature of the family composition, business-owning families realise more than ever that the challenge of being responsible owners requires great attention and hard work to make it all happen.
The 16th Summit will touch on these ownership issues as well as the latest developments in the family business community with regard to legislation, research, education and best practice.
Welcome to Belgium
One of the advantages of international events is that they are held in a specific country, which provides an opportunity to get a better understanding of this country and its culture. The 16th Summit in Belgium has taken this a step further.
A host committee of Belgian family businesses will welcome the participants to their country. Luc Bertrand, CEO of Ackermans & van Haaren, a family business founded in 1880, chairs the committee. The EHSAL European University College in Brussels is the host for the FBN-IFERA World Academic Research Forum, co-chaired by Professor Johan Lambrecht of EHSAL and Professor Matti Koiranen of the University of Jyväskylä, Finland, and Fellow of IFERA.
The Programme committee of the Summit includes one of the main family business experts in Belgium, Jozef Lievens of the Institute for Family Business in Belgium.
And, last but not least, on the second day of the Summit (exclusively for participants from family businesses) the programme includes on-site live cases of Belgian family businesses. These companies invite peer family business members to their offices to share their experiences, best practices and dilemmas on responsible ownership as well as other management and governance issues with regard to their family business.
Transparency and privacy
Transparency is a topic often discussed in the corporate governance debate. But transparency from a family business point of view is only valid if it serves a purpose. On 15 September the Summit will provide an opportunity to meet with other stakeholders. Understanding each other's views, and the willingness of business families to share their experiences, is crucial to a prosperous family business community. Business-owning families can play a predominant role as the forerunners of responsible ownership in society.
Privacy is, on the other hand, another important aspect. It can bring a competitive advantage to the business, and it also allows individuals and families to express their views among each other and their peers. That is exactly what the Summit will bring on 16 September, when there is a dedicated family business day – open only to family business members – where they will meet and exchange in a confidential and intimate environment. The FBN 16th Summit promises to be an exciting event.
Albert Jan Thomassen is member of the 16th Summit Programme Committee and Director of FBNed – the Dutch Association of Family Firms