Family Business Governance

Family businesses constitute the world’s oldest and most dominant form of business organizations. In many countries, family businesses represent more than 70 percent of the overall businesses and play a key role in the economy growth and workforce employment. They range from small and medium-sized companies to large conglomerates that operate in multiple industries and countries.

The Business Case 

Most family businesses have a very short life span beyond their founder’s stage and some 95 percent of family businesses do not survive the third generation of ownership. This is often the consequence of a lack of preparation of the subsequent generations to handle the demands of a growing business and a much larger family. Family businesses can improve their odds of survival by setting the right governance structures in place and by starting the educational process of the subsequent generations in this area as soon as possible.

IFC's Response 

IFC provides tools, consultations and training that focus on unique corporate governance challenges family businesses face and proposes structures and practices that can mitigate these challenges and ensure the viability of the business. 
 

Regional and Country Examples 

In Lebanon, SABIS® needed to develop a formal family constitution with key family policies and formal family structures, coupled with the fact that there was no formal process for succession of the chair and CEO. As a result of the corporate governance intervention by the Corporate Governance Program in MENA, the company developed a family employment policy, with the fourth generation now overseeing the day-to-day management, allowing for the co-chairpersons to relinquish control and transition that occurred on a gradual basis. Additionally, a formal succession planning process was developed.

In the Kyrgyz Republic, ongoing efforts by Altyn-Ajydaar to strength its internal controls, and formalize procedures for family employment—among other governance improvements recommended by IFC’s corporate governance team—have yielded significant results. The company, the nation’s leading producer of corrugated packaging with a 70 percent local market share, was able to access the capital it needed to grow, with a $2.2 million IFC loan to support the company’s expanding business. Recently, IFC rewarded Altyn-Ajydaar’s continuing corporate governance improvements by reducing the loan spread, yielding annual savings of more than $27,000.

In Egypt, CIRA had not specifically addressed the chair and CEO succession issue, leaving the company exposed to significant key-person risk. Following the Corporate Governance Program’s intervention with the company, a strengthened senior management team and a formalized executive committee allowed for the new CEO—the chair’s son—to gain much needed support and expert assistance, as he oversees the day-to-day management of the company, allowing the chair to focus on more strategic issues.

October 2018