“Corporate Governance Issues in Family-owned Enterprises”

From the Middle East to South America, an increasing number of companies are adopting corporate governance practices to modernize and become more competitive. In fact, CIPE partner the Brazilian Institute of Corporate Governance [in Portuguese] recently conducted a comprehensive study proving that corporate governance makes companies – family-owned companies – more profitable and more attractive to investors.

Last week, CIPE published an Economic Reform Feature Service article on the topic by Mahomed J. Jaffer and Syed Bulent Sohail of Orr, Dignam & Co., Advocates. The article, “Corporate Governance Issues in Family-Owned Enterprises,” focuses on the South Asia region, and Pakistan in particular. One important point that the authors make is that companies themselves have to want to adopt good governance – it cannot be imposed from above. In addition, those firms must be able to play a role in developing a system that works in the local business environment.

For those interested in the South Asia region or good governance in general, this article is a must-read.

Abstract:

As competition for foreign and domestic investment is heating up, companies continue to search for ways to remain competitive. Good corporate governance is increasingly recognized as an effective tool to improve firm competitiveness as well as the overall economic climate in a country.

In the South Asia region, family-owned businesses are a major component of the economy, and they too are facing stiff competition from new market entrants. In response to issues of competitiveness and sustainability, family-owned businesses are coming to terms with the need to establish an institutionalized governance process, develop a succession plan, and separate ownership from control. The implementation of good corporate governance practices can help to eliminate many of these problems.

For good governance to take root in South Asia, it is necessary to develop a ‘home-grown’ governance system that can provide tangible benefits to businesses, especially family-owned enterprises. Implementation of corporate governance practices will help these companies gain a competitive edge and facilitate further access to capital. In this regard, family-owned companies will be able to play a positive role in the growth and development of South Asia for years to come.