Guidelines for Family Business Boards of Directors

The focus of this study iswhether reforms ofgovernance guidelines and standards proposed for publicly held corporations areappropriate for closely held, family-owned businesses. Two models of governanceare contrasted: the market model of corporate governance is common (especiallyin the U.S., U.K., and Ireland) where capital markets are highly liquid andshareholders are dispersed. The control model is common were ownership isconcentrated and control is not fully separated from ownership. The typicalclosely-held family business exhibits characteristics of the control model. It isargued that many corporate governance reforms suitable for themarket model may be detrimental to the family business. The recommendations mayharm family unity or be too complex for private firms (being applicable only tovery large public companies). The heart of corporate governance isaccountability: the need for decision makers to justify and acceptresponsibility for decisions and their implementation. For family firms,accountability also involves avoiding conflicts between family and businessroles and preserving trust and unity. Proposes guidelines for family-owned firms that, if implemented would leadto great board accountability and positive results in board and companyperformance. Recommendations toward achieving accountability are offered underthree categories: (1) competencies needed to ensure shareholder accountability,(2) ways shareholders should exert rights to hold board accountable, and (3)actions the board must take to hold management accountable. The biases of themarket model are discussed with each recommendation and its justification. To achieve accountability, a competency-based board focusing on balancingmonitoring and collaboration is needed for the typical family-owned firmoperating under the control model. Although no single model can account for themany configurations of firms, the guides offered are considered to bebest suited to the typical family business. (TNM)