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The Rules And Principles Of Corporate Governance

1048 words - 5 pages

Corporate governance often refers to a set of rules and principles by which a company is directed. It provides a guideline for directing a company in order to fulfil its objective, brings added value to the enterprise, and is beneficial to the shareholders in long-term. (1) The rules and principals of corporate governance to an extent might be different in various companies, but some of these rules are similar in all the firms; such as accountability and responsibility towards the shareholders and commitment to conducting business in an ethical manner. (2)
Family-owned companies are the leading form of business in many countries. In Middle East, over eighty percent of the businesses are ...view middle of the document...

In addition to this problem families usually need outsider investment in a stage of their business growth; preparing for and accepting outsiders is an issue that families need to deal with. Corporate governance in the context of family business materializes in response to such problems and issues. The writer believes that the two discussed issues are the most significant ones among various issues that necessitate a good corporate governance practice; as such in the rest of the essay focuses on providing solutions for these issues.
There are many different solutions (or elements as referred to in the topic) for the above mentioned issues of which, in the eye of the writer, the most important ones are: (a) family governance, (b) board of directors and (c) going public.
(a) Family governance: To avoid such a disaster, IFC Family Business Governance Handbook suggests establishment of a family governance institution to keep the family intact. Such institutions are categorized into three major classes and four minor ones. The major ones are: Family Assembly, Family council and Family office, while the minor classes are: Education Committee, Shares Redemption Committee, Career Planning Committee, and Family Reunion & Recreational Committee. This essay is too short to discuss the details of each class (for discussion on these please see the mentioned IFC Handbook) but the reader must know that the purpose of such institution is to “increase the communication links between the family and its business as well as provide opportunities for family members to network and discuss aspects that can be related to the business or the family. These organized activities help increase understanding and build consensus among family members. (1)
(b) Board of directors in a family business: In an environment of contrasting visions an independent board of directors made of professional non-family members, would be a necessity and could be critical to the survival and sustainability of the company. An Independent board brings formality, and makes independent decisions from the family and merely to the benefit of the business. In such a board usually the chairman is one of the family members chosen by the rest of family...

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