Answer to Question #98494 in Management for Shusha

Question

Distinguishing family business management from family business governance, discuss using illustrative examples the significance of family business governance in contemporary economies

Answer 1

Management and governance may seem to be the same thing, but nothing can be further from the truth. Management can be defined as the day to day happenings in an organization where staff members carry out duties and decisions assigned to them by the management (Aronoff & Ward, 2016). To understand governance, one has to understand who made the decisions that directed the management to assign employees particular tasks. Making decisions on the direction that a company takes is the prerogative of the people governing that company. For instance, public companies have a board of directors who make decisions on who the management will be. For such choices to be made expertly, a set of formal structures and procedures need to be followed. However, formality is not a friend of family-owned businesses.

Many family-owned businesses are known to dislike formality, claiming that it slows them down. However, with the complex nature of family-owned businesses involving ownership, family, and business, making things formal is inevitable. It is essential to outline the responsibilities of each family member to avoid people overstepping their mandates. Family businesses often face problems of succession. When it’s time for the founder or founders to retire, the question of who will take over is often a source of conflict for family members. This was the case with SABIS®, a global educational venture that started in Lebanon. However, after identifying governance to be an essential factor in sustainable growth, the company adopted formal structures of governance (Currie-Knight, 2014). This has seen the company rise to 70 schools in 25 countries distributed globally. In the United States alone, the company has employed around 4000 employees, which is an excellent contribution to the economy of the United States.

Banco Espírito Santo is a Portuguese company that went down because of issues of poor governance policies. The chief executive officer of the company, who is a great-grandson of the founder, had to resign following an accusation of financial improprieties throwing the company into disarray. The CEO wielded significant decision powers granted by the clan culture that the company followed, leading to poor accountability on his part. Had this company emphasized financial responsibility and integrity through corporate governance, such scandals would have been avoided (Simo, 2017). The result of the scandal at the Banco Espírito Santo led to the bank being resolved in 2014 after 145 years. The implication of the failure of this bank had on the economy was that the government was forced to use public funds for resolution.

In conclusion, governance is as important as management. Governance of family-owned businesses is equally vital for sustainability and the economy. Most companies in different countries are family-owned, which means that the contribution of family-owned firms is immense. As such, these businesses need to be encouraged to adopt effective governance that is documented and not by word of mouth.

References

Aronoff, C., & Ward, J. (2016). Family business governance: Maximizing family and business potential. Springer.

Currie-Knight, K. (2014). From Village School to Global Brand: Changing the World Through Education.

Simo, A. Y. (2017). Corporate Governance: case of BES (Doctoral dissertation).