Survey Provides Rare Insight into the Governance of Private Family Businesses.
October 18, 2017
Toronto – Family businesses, arguably the most important contributors to Canada’s economy, recognize the need for strong governance, but approach board oversight in a variety of ways depending on their size and stage of maturity. A survey conducted by the Institute of Corporate Directors (ICD) and the Clarkson Centre for Board Effectiveness (CCBE) at the University of Toronto’s Rotman School of Management shows that, while family businesses in the early stages of growth tend to rely less on formal governance structures, second- and third-generation companies tend to move toward formal governance such as fiduciary boards.
“This study is a strong start to better understanding family businesses and their unique governance strengths and challenges,” says Rob Brouwer, Chair of the ICD Ontario Chapter. “We hope to support family enterprise by identifying the governance approaches that yield the best results for each stage of the company’s evolution.”
The survey shows:
- Family businesses usually adopt an advisory board in the first 30 years (first generation), with 32% opting for a formal fiduciary board.
- More than half of second-generation companies have formal fiduciary boards.
- By the third generation, no company relies solely on an advisory board, and 64% have a fiduciary board.
- 34% of advisory board members are women, compared to just 24% for fiduciary boards.
- Fiduciary boards hold shorter meetings and are more likely to reach constructive consensus than advisory boards.
Read the study online.
“Canada’s family businesses create much of the wealth and employment in our country,” said ICD President and CEO, Rahul K. Bhardwaj. “This study shows that their transitions from small to medium to large enterprises is supported by correspondingly more formal board governance structures.”
The survey also shows that governance concerns shift over time with growth and performance being the top focus for most family businesses today, but that succession is becoming a top concern for many. Succession for first-generation companies generally means developing the next generation of family members, while for third-generation companies succession usually refers to finding the next CEO.
“Family business governance is an important, yet overlooked, area that warrants more study,” says CCBE’s Manager Matt Fullbrook. “Our survey opens the door into this sector’s ‘boardroom,’ and helps us understand the motivations behind decision-making approaches in each generation.”
The Institute of Corporate Directors (ICD) is a not-for-profit, member-based association representing Canadian directors and boards across the for-profit, not-for-profit, and Crown sectors. The ICD has more than 12,000 members and 11 Chapters across Canada and fosters the sharing of knowledge and wisdom through education, professional development programs and services, and thought leadership to achieve the highest standard of directorship. ICD members across all sectors of the economy oversee well in excess of $1 trillion in market capitalization and institutions that impact the lives of virtually every Canadian.
The Clarkson Centre for Board Effectiveness (CCBE) at the Rotman School of Management, University of Toronto, is Canada’s leading independent corporate governance research body. CCBE’s mission is to create practical tools and insights to improve the effectiveness of boards of directors in all sectors. CCBE’s research focuses on effective disclosure, adoption of formal governance processes, pay for performance analysis and more.
The Rotman School of Management is located in the heart of Canada’s commercial and cultural capital and is part of the University of Toronto, one of the world’s top 20 research universities. The Rotman School fosters a new way to think that enables our graduates to tackle today’s global business and societal challenges. For more information, visit www.rotman.utoronto.ca.
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