Governance is crucial for the growth and running businesses sustainably. Balancing family dynamics with sound business practices is essential for successful governance in family-owned businesses. As businesses grow, decision-making becomes more complex during the acceleration stages of shaping new frontiers. This highlights the need to ensure good corporate structures are implemented to stand the test of time.
Regrettably, family-owned businesses have been tottering due to sibling rivalries and legal battles, which, in most cases, leave the entities in vicious cycles of losses and ultimately liquidation. As a measure to avoid this pitfall, businesses must embrace the following good governance practices to remain sustainable:
1) Compliance with Laws and Regulations; Companies should remain compliant with the Companies Act 2015. The Act ensures compliance by the legal entity and acceptable business practices. Additionally, compliance with other regulators is required, such as tax and labour laws.
2) Board of Directors; The Companies Act mandates the establishment of a board of directors for every company. The board is responsible for the overall governance and management of the company. Boards are required to act in the best interest of the company and its stakeholders.
3) Board Composition and Independence; The board of directors should be composed of individuals with diverse skills and experience. It’s important to ensure a balance between executive and non-executive directors and to have independent directors who are not involved in day-to-day operations.
4) Audit and Risk Management; Businesses are required to maintain effective systems and internal control, risk management, and financial reporting. Auditors should be appointed to review financial statements and corporate governance to ensure compliance standards are met.
5) Shareholders Rights and Responsibilities; Shareholders have rights to receive timely and accurate information about the company, attend meetings, and vote on important matters. The board should facilitate shareholder participation and engagement.
6) Disclosure and Transparency; It is crucial to provide accurate and timely disclosure of financial and non-financial information to shareholders and stakeholders. Upholding high standards of ethics and integrity in reporting should be embedded in the organization’s culture.
7) Sustainability and Corporate Social Responsibility (CSR); Business environment and its perception of society contribute to the overall performance. Employees play a central role as key resources. Organizations must contribute to the community by promoting environmental sustainability and engaging in socially responsible practices.
8) Compliance with Industry Codes and Guidelines; Depending on the industry, companies may need to comply with specific sectoral codes or guidelines in addition to the general governance requirements to avoid regulatory penalties.
In conclusion, it is important for family-owned entities to assess their governance structures and practices to reflect good governance practices. Implementing these strategies enhances operations, maintains family harmony, and position themselves for long-term business sustainability.