How can family businesses improve governance and do things right?

Environmental, social and governance (ESG) has been a hot topic in the business space over recent years, with more public consciousness on a wide range of issues, including climate change, modern slavery, poverty, and inequality.

Companies are now expected to contribute not only to minimise negative impacts to such challenges, but to also help society progress and replenish the environment. In this respect, good governance within a business is vital.

This is especially the case for family businesses, which may face challenges when it comes to decision-making primarily due to the significant amount of emotion placed into the business.

This was a topic that was highlighted during the Family Business Forum, an event co-hosted by Ganado Advocates and Zampa Debattista on Thursday. The forum brought together various professionals and governance specialists to discuss different perspectives on how important strong governance is when it comes to establishing value for family businesses. One of the panels, moderated by Zampa Debattista Partner Mark Wirth, featured Ganado Advocates Partner Annalise Papa, Alberta Group Director Liz Barbaro Sant, MCESD Chairman David Xuereb, and APS Bank Senior ESG Manager Matthew Swain.

Speaking during the panel discussion, Dr Papa stated that in order for family businesses to improve their governance, they have to first and foremost “know exactly where they are at every point in time and know what they’re doing”.

Businesses, whether family-owned or not, cannot think about governance unless they truly “know what the business stands for”.

In the case of family businesses, businesses leaders need to be able to take a step back when emotions start to kick in and influence decision-making. Business leaders must ensure that the decision “is aligned to the strategy”, Dr Papa explained.

Additionally, it is vital for business leaders to “write everything down”.

She added: “It’s not that many businesses don’t have a strategy, but many just don’t write it down. Writing it down allows you to have your legal basics covered as a company. As the business becomes more complex, how can your report on your ESG if you’re doing something you’re not writing down?”

Ms Barbaro Sant, who has been involved in family business Alberta Group for 33 years, said that a governance structure “creates the roadmap for decisions”.

She acknowledged that family businesses must also express a willingness to remain relevant in their respective industry.

Family businesses tend to struggle when they are passed on from one generation to the next, particularly due to the older generation’s resistance to let go or pass information on to the younger generation. This is due to the lack of an effective succession plan.

“Founders need to respect the growth of the company,” Ms Barbaro Sant stressed.

In order to do so, they may need to employ people who are greater or more knowledgeable about the area than them. However, she said that it is also important for family business leaders to be careful “not to turn the business into something they didn’t initially plan it to be”.

Dr Papa agreed with this, adding that the sharing of knowledge between Founders to the next generation “helps the business stay relevant”.

“Part of staying relevant is knowing when you need counsel. If it’s too expensive to consult and external lawyer or advisor, then train someone in-house instead,” she concluded.