Owner Managed Businesses and Corporate Governance

Corporate governance is intended to increase the accountability of a company and to help avoid disasters before they occur. There are many examples of where corporate governance has failed, a well-known example in recent times is the failure of energy giant Enron with its bankrupt shareholders and employees. The failure of Enron is a prime argument for the importance of solid corporate governance and more often than not we find that family businesses neglect this key aspect of their business.

The Companies Act 2006 creates a legal duty on a director to promote the success of the company for the benefit of its members, whilst also taking heed of any long-term consequences of decisions and the impact on the interests of other stakeholders such as employees, suppliers, customers and communities. However, for family owned and managed businesses, this obligation may at times conflict with those interests of the family – take for example, the hiring of a family member who might not have the requisite skills to fulfil their job.

Where the interests of the family may compete with those of the company, good corporate governance would be to disclose and record consideration of these issues, for example through board minutes or resolutions of the directors.

We always recommend that time is found for regular communication and board meetings and that any key discussions and decisions are recorded within a set of minutes. This will hopefully help to reduce any scope for misunderstandings and help to facilitate sound commercial decision making. Families may also wish to consider appointing a non-executive director to mediate should family tensions and differences arise.

In a nutshell, the purpose of corporate governance is to help facilitate effective management that will in time hopefully deliver the long-term success of the company. An outcome everyone wants!

Longmores’ Commercial team are highly experienced. To discuss how we can help, please get in touch with our Company Commercial team.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.