Introduction: Family Business Governance
Provided by IFC Corporate 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. In Spain, for example, about 75 percent of the businesses are family-owned and contribute to 65 percent of the country’s GNP on average. Similarly, family businesses contribute to about 60 percent of the aggregate GNP in Latin America.
Family businesses range from small and medium-sized companies to large conglomerates that operate in multiple industries and countries. Some of the well-known family businesses include: Salvatore Ferragamo, Benetton, and Fiat Group in Italy; L’Oreal, Carrefour Group, LVMH, and Michelin in France; Samsung, Hyundai Motor, and LG Group in South Korea; BMW, and Siemens in Germany; Kikkoman, and Ito-Yokado in Japan; and finally Ford Motors Co, and Wal-Mart Stores in the United States.
It is also a fact that most family businesses have a very short life span beyond their founder’s stage and that 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.
This Handbook will focus on the unique corporate governance challenges that family businesses face and propose structures and practices that can mitigate these challenges and ensure the viability of the business. The Handbook gives an international perspective since it focuses on characteristics of family businesses that can be observed across countries. The suggested governance structures of the Handbook will need to be adapted to the local requirements and regulations of family businesses before being applied in a specific country.
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