2nd and 3rd generation shareholders

Family-owned or controlled companies are the leading form of business organization in Latin  American countries, among other large listed companies: one recent study from Brazil shows  that 51.5 percent of the 200 largest listed companies are family-controlled.

As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges. The generations that follow the founder, for example, may insist on running the company even though they are not suited for the job. And as the number of family shareholders exponentially generation by generation, with few employees working in the business, the commitment to carry on. Indeed, less than 30 percent of family businesses survive in the third generation of family ownership. Those that do, however, tend to perform well over time compared with their corporate peers, according to recent McKinsey research. Their performance suggests that they are not just about family businesses, but also about various sizes and developments,

To be a family business meet two intertwined challenges: achieving strong business performance and being able to do business. Five dimensions of activity and work in synchrony: harmonious relations within the family, and understanding of how to be involved with the business. strong governance of the business portfolio, professional management of the family's wealth, and charitable foundations to promote family values ​​across generations.


Strong boards

Large and durable family businesses tend to have strong governance. Members of these families avoid the principal-agent issue by participating in the work of company boards, where they monitor performance diligently and draw on deep industry knowledge through a long history. On average, 39 percent of the board members of family businesses are inside directors (including 20 percent who belong to the family), compared with 23 percent in nonfamily companies, according to the analysis of the S & P 500.1. the management team, since they've been around the industry for decades, "said the CEO of a family business. "Still, they have separate ownership and management in a good way."

Or course, it is important to complement the family's knowledge with the fresh strategic perspectives or qualified outsiders. Even when a family holds all the equity in a company, its board will most likely include a significant proportion of outside directors. One family has a rule that half of the seats should be occupied by outside CEOs who run businesses at least three times larger than the family one.

Procedures for all nominations to the board-insiders as well as outsiders-differ from company to company. Some boards select new members and then seek consent by an inner family committee and formal approval by a shareholder assembly. Formal mechanisms differ; What counts is most important for the family to be deeply involved in top-executive matters and manage the business portfolio actively. Many have meetings that stretch over several days to discuss corporate strategy in detail.

Family businesses, like their non-family peers, face the challenge of attracting and retaining world-class talent to the board and to key executive positions. In this respect, they have a disability because non-family executives might fear that family members make important decisions informally and that the career opportunities of outsiders. Still, family businesses often emphasize caring and loyalty, which some talented people may see as nonfamily corporations sacrifice.

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