Governance structures affect family business productivity


12 August 2013: Research from Deloitte examines how gaps in governance, board operations and succession planning can affect the long-term success of a family business. The findings come from the report, Perspectives on family-owned businesses/Governance and succession planning, which explores the trends exhibited by family businesses in the USA. The report has strong parallels with Australian family businesses.  

“Australian family businesses are finding that the operational demands of running their business can be all-consuming. It’s therefore important for family business owners to take the time to consider how the oversight of a board may improve their business and to groom the next generation of leaders”, said Michael Clarke, Deloitte Private’s Chief Operating Officer.

According to the Deloitte survey:

  • More than a quarter (28 per cent) of the respondents do not have a board of directors
  • Close to half (49 per cent) of the respondents said they only review succession plans when a change in management requires it and 41 per cent do not have leadership contingency plans
  • 42 per cent of the survey respondents indicated that family members comprise at least 75 per cent of their board
  • Of those with a formal board, only 39 per cent are controlled by a  majority of non-family, non-executive members
  • Boards are not tapping into an important talent pool, as two-thirds of boards have fewer than 30 per cent female membership
  • A significant majority, more than 80 per cent, say their boards have no term or age limits on membership and one-third do not evaluate board member performance.

“In Australia, family-owned businesses may have a suitable board of directors but the question needs to be asked if they are applying optimal governance processes. Boards need to be evaluated and assessed according to how much value they bring to the table and the long-term performance of the business”, said Mr Clarke. 

“Many family businesses predominantly feature family members only on their board, which makes it difficult to separate family matters from business matters. To address this, many Australian family businesses appoint a non-family member as Chair of the Board. This helps to break deadlocks and family disagreements and often allows for a casting vote on the board”, said Mr Clarke.

The Deloitte report examines the top priorities for the boards of family owned businesses. These include corporate strategy, business performance and financial reporting. The report also points out that the board has lead responsibility for the CEO’s performance and needs to be able to provide a valuable source of insight, experience and oversight across a range of functions.

“There is a danger of limiting family businesses’ productivity by underutilising external expertise. The role of external board members is vital and adds a valuable and independent commercial perspective”, added Mr Clarke.

The Senate Committee Inquiry into Family Business in Australia recently highlighted the significant contribution to Australia’s productivity by the family business sector.

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