Governance at the early stages of a family business is typically effected through informal systems centred around the owner, who makes major decisions concerning the business. This arrangement is fine so long as management and ownership remain concentrated within a few individuals/family members. But as the business grows and transitions to a stage where there are more shareholders who may have different interests, mechanisms must be put in place and formalised so that all these views are taken into account. This is all the more evident when the family decides to list the business. Aside from compliance to regulatory requirements by local authorities, the business needs to demonstrate to investors through corporate governance disclosures that the board and senior management are running a tight ship.
Which brings me to the next point on risk management. The universe of risks faced by a small owner-managed business is nowhere as complex as that of a multinational conglomerate. When a family business starts to scale up and evolve, so too must the way in which it manages risks. Unfortunately, risk management is often seen as an afterthought - a part of the compliance process. The reality is that successful businesses all manage risk from the onset, beginning with the articulation of strategy. The board (and by extension the shareholders) must be able to gain comfort from the fact that the business’s governance architecture supports this. In essence, it is not just about effectively managing risks, but just as importantly, knowing when to take on the right risks as well.”