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Corporate governance in a family-owned corporation

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FINEX Folio -- By Flor G. Tarriela

FINEX Folio

AT THE BAIPHIL 3rd General Membership Meeting, corporate governance “guru” and guest speaker Dr. Jesus Estanislao emphasized that governance demands a focus on the long-term, realizing a great “vision” in five to ten years. Governance demands a focus on the institution and what the institution should become. Yes, people are very important, but cautioned against personalities. He said governance asks for a strategy, a set of priorities pursued across all the different facets of any business. The key focus is on priorities which must be inter-connected and mutually supportive.

How then does one apply and observe them to a family-owned or controlled corporation? Tough question, he said, especially if the founding patriarch is still around. Governance goes way beyond mere practices and rules. It is made alive and comes into genuine force only if individuals decide to take on and personify the basic governance personal values such as integrity, fairness to all, personal discipline and courage. These are the personal values that make governance really count. These are the governance values that should be adopted by all corporations. Dr. Estanislao said this is required of everyone and more so of family members, given their significant position within a family-owned corporation, they are specially called upon to observe these personal governance values.

Is governance all about compliance? Is it simply ticking off some 100 scorecard questions such as:

• Do we have diversity e.g. enough women directors in our board?

• Do we have enough independent directors?

• Are the independent directors within their 9-year limit? (Former Prime Minister Cesar Virata told me “Flor, do you mean to tell me at the end of the 9th year, I lose the independence in my decisions?”)

• Do we provide for electronic voting during our AGM?

• Is the chairman different from the CEO, etc.?

Governance is more than compliance, it is a mindset, a development mindset, an institution-strengthening mindset, one that wants to ensure long-term sustainability of high-level performance and therefore, it is more than a box ticking exercise. We need to ensure that we have a clear answer to questions such as:

• Do we have a clear long-term strategy associated with the vision we have?

• Do we have a clear road map on how to deliver transformation and game-changing results, using a performance scorecard?

• Do we have a corporate culture that aims to transform individuals, teams, and the whole enterprise itself into governance and transformation agents to benefit the wider community as well?

He asked what non-family members should bring to the governance table so they contribute to adding value to the family-owned and controlled corporation they work for. The answer is the same whether one works for a family corporation or a widely owned corporation. The institutional governance values of commitment and loyalty (not to personalities), but to the corporation and its progress, sustained into a long-term future. Commitment must come with competence — the continuous acquisition of knowledge, skills, and culture to meet the challenges of a changing environment. Commitment with competence and loyalty should also have the spirit of service, which breeds professionalism and patriotism. He added that patriotism is something we Filipinos still need to put more serious work into.

He concluded that “governance essentials’ application to a family-owned and controlled corporation is more demanding for members of the controlling family who may be working in such a corporation. The demands on non-family members who may be working there are the same as if they were working in some other corporation, not controlled by any single family.”

FINEX will soon launch the book “Ethics: White, Black or Gray?” featuring 50 interesting and thought-provoking articles from the government and private sector. And personal ethical behavior is a pillar of corporate governance.

 

Flor G. Tarriela is the Chairman of Philippine National Bank. She is former Undersecretary of Finance and the First Filipina Vice President of Citibank N.A. She is Go Negosyo 2018 Woman Intrapreneur Awardee. She is a FINEX Foundation Trustee and an Institute of Corporate Directors (ICD) Fellow.