Strategic Management Essay

1912 words - 8 pages

Question: There are clear benefits from adopting elements of the so-called western governance model. However, for the family firm, some governance mechanisms are less applicable than others. For a small (but not tiny) family business, what advanced governance practices might you recommend? Why would you make these recommendations? What objections might you expect and how would you address those objections? (Assume $10mm annual sales, 200+ employees, and operations in more than one geographic area)

Corporate governance is discussed and talked about much because of the failure of some large companies in the recent days. People tend to look at the corporate governance of a company to assess whether to invest in or to trust the company’s business. Therefore, corporate governance is not only the matter of large companies. Magretta (1998) estimated that over 50% of the world economy are family companies owned or dominated. Corporate governance in family owned company is really a matter need to be noticed. For a small family business, I strongly recommend people to build an efficient board of directors (BOD) by setting the standards or qualifications for a family member to be in the BOD, separate the position of the director and the manager, and hire an outside competent Chief Executive Officer (CEO) if the family member manager does not have enough experience to maintain the operation of a 200+ employees company.
First, building an efficient BOD is the most concern to solve the corporate governance matter. In order to do this for a family owned company, people should set and indicate clearly in the corporate governance code the qualifications and the requirements for a family member to sit on the Board. Several of corporate governance literature for family businesses focuses on skills and backgrounds of board members; they will be preferred to have diversified backgrounds on related fields, or experience as the position of managers before (Suzanne Lane, 2006). Moreover, Noor Afza Amran and Ayoib Che Ahmad (2010) proved that a board with professional and qualified directors will make a better firm performance. However, not every board members of a family company is qualified for the position. Some of them will object to the rule of the qualifications for the BOD; or some new established family companies are lack of experience people who is really needed for the BOD. In order to solve this conflict, the family company should communicate well in the corporate governance code about the qualifications at the beginning of the Board constitution. The important roles of the BOD should be stated clearly and should be understood by all members. In the case of lacking qualified people, the family members should invite an outsider to sit on Board. This person must have special experience and background to meet the requirements of the company. According to the experiment of Elstrodt (2003), in most of the family companies, the family nominates the...

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