The Era of Global Business and Corporate Governance: Environment, Structure and Challenges

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More independent directors are being appointed to boards due to wider capital distribution. Recently, the Brazilian Chamber of Deputies approved legislation that would allow politicians to once again be nominated to SOE boards. The Federal Senate will soon decide on the proposal, but its approval could trigger a backlash. Organizations like the Brazilian Institute of Corporate Governance are firmly positioning themselves against the law change, viewing it as a step back from recent governance progress.

However, the Novo Mercado rules and Corporate Governance Code are strengthening the definition of independence and using shareholder meetings to confirm the independence of those directors. The recent introduction of the remote voting card for shareholders could have a major impact on boards. Public companies required to implement the new system should expect to see more flexibility and inclusion of minority shareholder-backed nominees on the ballot. While Brazil is making year-over-year progress toward minority shareholder protections, they continue to be a challenge.

CVM, along with B3 the Brazilian stock exchange , continues to push for higher governance standards and processes. There is an increased focus on board and director assessment whether internally or externally led to ensure board effectiveness and the right board composition. Under the Corporate Governance Code, companies will have to comply or explain why they do not have a board assessment process. Now that this has been overturned, public companies will be expected to start disclosing compensation information for their highest-paid executives and board members.

Companies are concerned that the disclosure may trigger a backlash among minority shareholders and negative votes against remuneration. Motivated by a desire to attract global investments, curb corruption, and strengthen corporate governance, India is continuing to push for regulatory reform. The adoption of the recommendations has caused many companies to consider and aspire to meet this new standard. Kotak implementation has triggered a significant wave of governance implications centered around improving transparency and financial reporting.

The adoption of these governance reforms is staggered, with most companies striving to reach compliance between April and April Boards will face enhanced disclosure rules regarding the skills and experience of directors, which has triggered many companies to engage in board composition assessments.

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Directors will also be limited in the number of boards they can serve on simultaneously: eight in ; seven in The top 1, listed companies in India will need to ensure they have a minimum of six directors on their boards by April , with the next 1, having an additional year to comply. Among other changes are new criteria for independence determinations and changes to director compensation.

Additionally, the CEO or managing director role and the chair role must be separated and cannot be held by the same person for the top listed companies by market capitalization. This will significantly change board leadership and control in many companies where the role was held by the same person, and it will boost overall independence. To further drive board and director independence, the definition of independence was strengthened, and board interlocks will receive greater scrutiny.

India continues to make improvements toward gender diversity five years after the Companies Act of and ongoing pressure from investors and policymakers. Nevertheless, institutional investors and proxy advisors are calling for more progress, as a quarter of women appointments are held by family members of the business owners and are thus not independent. Starting in , boards of the top listed companies will need to ensure they have at least one independent woman director; by , the top 1, listed companies will need to comply.

The reforms also include a requirement for the implementation of an oversight process for succession planning and updating the board evaluation and director review process. Governance stakeholders are eager to see how much progress Indian companies will make during the next 18 months, but many are not overly optimistic given the magnitude of change required in such a short period of time.

Investors are setting their expectations accordingly and understand that regional governance norms will not transform overnight. While it is unclear exactly how the government and regulators will respond to noncompliance, companies and their boards are feeling anxious about the potential repercussions and penalties. The Japanese government continues to be a driving force for corporate governance improvements.

To make Japan more attractive to global investors, policymakers are increasingly focused on improving board accountability. Despite a trend toward more proactive investor stewardship, regulatory bodies including the Financial Services Agency continue to lead reforms, with several new comply-or-explain guidelines added to the Amended Corporate Governance Code that came into effect in These guidelines, such as minimum independence requirements, establishing an objective CEO succession and dismissal process, and the unloading of cross-shareholdings, are aimed at enhancing transparency.

Director independence has been a concern for investors, with outside directors taking only about 31 percent of board seats. Though some observers perceive a weakening of language in the code regarding independence, investors are unlikely to lower their expectations and standards. The amended code now calls for at least one-third of the board to be composed of outside directors up from the quota requirement of two directors that existed previously. Starting next year, ISS will adopt a similar approach to its Japanese governance policies, employing a one-third independence threshold as well.

Given recent scandals, institutional investors and regulators will continue to pay close attention to the structure of executive compensation. Performance-based compensation plans will be a major area of focus in More companies are introducing new types of equity-based compensation schemes, such as restricted stock, and are expected to follow the trend into next year.

Board diversity. Over 50 percent of listed companies still have no women on their boards. To upgrade board quality and performance, investors will likely engage more forcefully on gender diversity, board composition and processes, board oversight duties and roles, and the board director evaluation process. In , boards can expect more shareholder interest in sustainability metrics and strategy. Investors are keen to see enhanced disclosure that aids their understanding of value creation and the link to performance targets, as well as explanations concerning board monitoring.

Activism continues to rise in Japan, and we expect that trend to continue. Activists are showing a willingness to demand a board seat and engage in proxy battles, and institutional investors are increasingly willing to support the activist recommendations. Investors also will be paying close attention to several other governance practices, such as the earlier disclosure of proxy materials and delivery in digital format, and protecting the interest of minority shareholders.

As a result, more companies are introducing nominating committees and discussing. Companies are also being urged to unload their cross-shareholdings when a listed company owns stock of another company in the same listing and adopt controls that will determine whether the ownership of such equity is appropriate. Such holdings are likely to be policed more by regulators due to the tendency of such holdings to insulate boards from external pressure, including takeover bids. Subscribe or Follow. Corporate social and environmental responsibility CSR seems to be rapidly moving from the margins to the mainstream of corporate activity, with greater recognition of a direct and inescapable relationship between corporate governance, corporate responsibility, and sustainable development.

The burgeoning importance of this newly revived movement is demonstrated by the current frequency and scale of activity at every level Calder and Culverwell , At the national level a growing number of governments in Europe, and across the globe, have identified strongly with the call for corporate social and environmental responsibility, even with the evident difficulties in applying the Kyoto Protocol and creating an effective international climate-policy regime.

A large number of leading corporations have signed up for the Global Reporting Initiative and more than 2, international corporations now publish reports on their CSR performance many accessible on www. In the GRI published new guidelines on materiality, stakeholder inclusiveness, sustainability context, and completeness of reporting GRI Finally, there are a proliferating number of consultancies, NGOs and campaign groups offering guidance and actively monitoring CSR activities along the entire length of the global value chain World Bank Questions are often addressed regarding the sincerity of corporate social and environmental initiatives; the legality of company directors engaging in these concerns; equally, the legality of the trustees of investment institutions attending to these interests; and the verifiability of CSR activities and outcomes.

It is important to clarify the continuing and emerging legal and commercial basis for corporations to pursue corporate social and environmental responsibility; the ongoing legal and material support for institutional trustees to prioritize socially and environmentally responsible investments; to examine developments in verification on corporate reporting of CSR performance; and to consider some illustrations of current best practice. David Vogel in a review conducted for the Brookings Institute, The Market for Virtue: The Potential and Limits of Corporate Social Responsibility , contends there are many reasons why companies may choose to behave more responsibly in the absence of legal requirements to do so, including strategic, defensive, altruistic or public-spirited motivations.

However despite pressure from consumers for responsibly-made products, the influence of socially-responsible investors, and the insistent call for companies to be accountable to a broader community of stakeholders, there are important limits to the market for virtue:. CSR is best understood as a niche rather than a generic strategy: it makes sense for some firms in some areas under some circumstances. Many of the proponents of corporate social responsibility mistakenly assume that because some companies are behaving more responsibly in some areas, some firms can be expected to behave more responsibly in more areas.

This assumption is misinformed. There is a place in the market economy for responsible firms. But there is also a large place for their less responsible competitors … Precisely because CSR is voluntary and market-driven, companies will engage in CSR only to the extent that it makes business sense for them to do so. Civil regulation has proven capable of forcing some companies to internalize some of the negative externalities associated with some of their economic activities.

But CSR can reduce only some market failures , 3—4. Vogel concludes that CSR has a multidimensional nature, and that companies, like individuals, do not always exhibit consistent moral or social behaviour, and may behave better in some countries than others depending on the social and environmental policies existing there. Since the origins of capitalism, there have always been more or less responsible firms, and it is heartening that executives in many highly visible firms may be becoming more responsive if only as a result of external stakeholder pressures.

However the reality is that the amounts wasted on losses due to financial fraud, the very substantial—and some would argue unwarranted—increases in executive compensation in corporations, and the huge losses in the global financial crisis, in recent years far exceed any resources companies have devoted to CSR. In a similar vein Deborah Doane who is Chair of the Corporate Responsibility Coalition in the United Kingdom, is sceptical regarding optimism about the power of market mechanisms to deliver social and environmental change, referring to the key myths informing the CSR movement as follows:.

It may well be the case that further legislative and regulatory intervention will be required to ensure all corporations fully respond to the growing public demand that they recognize their wider social and environmental responsibilities. However, it is useful to examine how far CSR objectives can be achieved within existing law and regulation. If there is substantial evidence of leading corporations demonstrating that it is possible to voluntarily commit to social and environmental performance and to achieve commercial success—perhaps because of, rather than in spite of, ethical commitments—then it will be more straightforward to press for the legislative changes necessary to deal with corporations that refuse to acknowledge their wider responsibilities, as well as find appropriate legislative support for companies that wish to develop further their CSR commitments.

Reviewing the efforts to develop CSR following the World Summit on Sustainable Development, a survey by the Royal Institute for International Affairs of stakeholders from governments, businesses and civil society groups identified a range of significant weaknesses in current approaches to promoting CSR which governments should seek to address:. The rapidly developing interest in CSR and sustainabilty has resulted in a plethora of definitions and interpretations of the two concepts from international agencies, consultancies and practitioners Calder and Culverwell ; McKague and Cragg A first difficulty is that the most commonly employed acronym, CSR, refers to corporate social responsibility, though in most interpretations it is meant to include environmental responsibility also.

The use of the simpler term corporate responsibility and acronym CR is not in widespread use, though it would more readily embrace all corporate responsibilities. Corporate sustainability is a critical issue because of the economic scale and significance of these entities and their growing impact on the economy, society and environment. More confusingly still, in some definitions sustainability is included within CSR, while in others CSR is subsumed under sustainability. One source of this confusion is that often different levels of analysis are being addressed.

At the highest level the sustainability of the planet is at issue, and at lower levels the sustainability of economies and societies, industries and organisations. Once the primary in some cases sole concern was to produce goods and services that might generate the profits to achieve the financial sustainability of the corporation everything else was written off as externalities.

The license to operate can no longer be readily assumed for any corporation, and in an increasing number of contexts needs to be earned with verifiable evidence of the social and environmental responsibility of the corporation. Definitions of CSR and sustainability range from the basic to the most demanding, from a specific reference to a number of necessary activities to demonstrate responsibility, to a general call for a comprehensive, integrated and committed pursuit of social and environmental sustainability.

The following representative range of definitions of CSR is in ascending order from the least to the most demanding:. Sustainability as a whole planet, environment, species is an altogether more ambitious project with more expansive definitions than CSR. Corporations have a vital role to play in this also, beginning with a modest recognition of their necessary subordination to the interests of maintaining a balanced ecosystem. Sustainability is defined as:. However challenging the prospects, there are growing indications of large corporations taking their social and environmental responsibilities more seriously, and of these issues becoming more critical in the business agenda.

KPMG since has conducted an international survey of corporate responsibility every three years which has revealed the developing prevalence of this commitment. Surveying the largest companies in a sample of advanced industrial OECD countries with the addition of the Global companies from , KPMG finds a steadily rising trend in companies issuing separate corporate-responsibility annual reports. In addition some companies have integrated their corporate responsibility report with their main financial report.

Publication of corporate responsibility reports as part of the annual financial reports of companies sometimes implies the issue is regarded as of greater salience, and companies often progress from separate to integrated CSR and financial reports. Large corporations are taking their social and environmental responsibilities more seriously, and these issues are becoming more critical in the business agenda. More importantly, the substance of company reports is changing, from purely environmental reporting up until , to sustainability reporting social, environmental and economic , which has become the mainstream approach of the G companies and is becoming so among the national companies.

In a further international survey of corporate executives and 65 executives of institutional investors on the importance of corporate responsibility CR the Economist Intelligence Unit EIU discovered a similar growth in interest:. The biggest percentage change between now and five years ago was among European executives.

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The survey of professional investors reveals a sharper trend. Now, not a single investor said it was not a consideration EIU , 5. As with the gap noticed earlier between consumer consciousness and behavior, it is likely there will be a mighty gulf between the expressed concerns of executives for corporate responsibility and their actual behavior in different circumstances and in the exigencies of difficult situations; however, simply expressing concerns is an advance over stony- faced refusals to even acknowledge responsibilities that may have occurred in the past.

Though some of the expressed concern may be part of the discourse of political correctness, there do appear to be grounds for a significant shifting of opinion among executives, as the EIU comments:. Until recently, board members often regarded corporate responsibility as a piece of rhetoric intended to placate environmentalists and human rights campaigners. But now, companies are beginning to regard corporate responsibility as a normal facet of business and are thinking about ways to develop internal structures and processes that will emphasize it more heavily.

In the not-too-distant future, companies that are not focusing on corporate responsibility may come to be seen as outliers. As companies focus on non-financial performance, an important yardstick of corporate responsibility, the measurement of intangibles, such as customer satisfaction and employee morale, are likely to become less vague and more credible EIU , 3. One of the surprising results of the EIU survey was that after more than a decade of the exhortation of the primacy in all circumstances of shareholder value, the executives surveyed still possessed a balanced appreciation of the relative importance of key stakeholders to the company, identifying customers, employees and shareholders in that order.

The EIU compiled some of the contextual highlights for these changes in executive views in the emerging evidence that corporate social and environmental responsibility is moving substantially from the margins to the mainstream of economic activity:. The manifesto includes five universally-accepted principles and values: the principle of humanity; the basic values of non-violence and respect for life; the basic values of justice and humanity; the basis values of honesty and tolerance; and the basic values of mutual esteem and partnership.

This is intended as an ethical complement to the UN Global Compact, with the manifesto providing a framework for ethical values to meet the moral dilemmas confronting boards and directors of multinational corporations, in the way in which the Compact is designed to address market and institutional failures Hemphill and Lillevik , The Global Economic Ethic Manifesto is a self-regulatory moral framework. It includes five principles and values: humanity; non-violence and respect for life; justice and humanity; honesty and tolerance; and mutual esteem and partnership.

At the confluence of these multiple emerging initiatives and trends towards greater corporate social and environmental responsibility there is emerging a dynamic stakeholder model for driving enlightened shareholder value. At many leading corporations the pieces of what is admittedly a very large and demanding puzzle are beginning to come together.

The wider commitments to building engaged and inclusive relationships with employees, economic partners, the community and the environment become a means of achieving enlightened shareholder value through access to a lower cost of capital, enhanced reputation, minimised risks and new business opportunities. The impact of the adoption of corporate commitments to wider forms of social and environmental engagement and reporting will be determined essentially by initiatives of leading companies and, in turn, this will be influenced by the insistent pressures companies encounter from the market, investors and stakeholders, and the perceived commercial benefit of assuming a broader accountability.

However, the role of the law and of accounting standards in establishing a framework of accountability and management discipline is a significant factor. The effective integration of corporate social and environmental responsibilities could potentially release greater value for both shareholders and wider stakeholders: moving beyond compliance, to creating new value through new products and services that meet societal needs; and collaborating to solve the complex and demanding social and environmental problems that threaten to grow beyond our control.

This would provide a more vital context in which people would have greater opportunity to exercise moral values and ethical commitments. It is possible that confronting the dilemmas of social, economic and ecological survival which governments, business and communities face, will force the rethinking of corporate objectives, structures, and activities that is necessary. London: AccountAbility. Berle, A. The Modern Corporation and Private Property. Calder, F. Clark, M. Clarke ed. London: Routledge, , 45— September Certified General Accountants Association of Canada.

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Christian Aid. London: Christian Aid. Corporate Responsibility Coalition. Among these three theories, the one more peculiar to family business is the Stewardship Theory. The approach adopted by this theory is that the board of directors and the chief executive officer, acting as stewards, are more motivated to act in the best interests of the corporation rather than for their own self-interest. The theory argues that over time senior executives tend to view the corporation as an extension of themselves [71].

Top management gives emphasis to the long term success of the corporation and not use the firm for their own needs. Due to this, it gives a better understanding of owner-manager relations within family businesses who also pursue non-financial goals [61]. Hence, it is reasonable to take the broader view on corporate governance, which includes the long-term survivability of a firm, as this is also a dominant aspect of the overall strategy of family businesses [74] [75].

In this perspective, stewards are company executives and managers working for the shareholders, protect and make profits for the shareholders. Unlike Agency Theory, Stewardship Theory stresses not on the perspective of individualism [76] , but rather on the role of top management being as stewards, integrating their goals as part of the organization. The stewardship perspective suggests that stewards are satisfied and motivated when organizational success is attained.

However, Stewardship Theory recognizes the importance of structures that empower the steward and offers maximum autonomy built on trust. Indeed, this can minimize the costs aimed at monitoring and controlling behaviours [76]. Increasing growth and globalisation has brought many challenges for family businesses and many of these challenges can be tackled by adopting sound corporate governance structures [78]. As the family business expands, the relationship among the owners, managers and employees becomes more complex. To be able to handle such issues, a good corporate governance system put in place the right policies to manage such a complexity.

Corporate governance creates a solid organizational structure that clarifies roles, reporting lines and delegation of responsibility. It also draws the line between ownership and management and separate policy direction from the day-to-day running of the company. To pass on this success to the next generation, corporate governance needs to be made part of the family business culture so that there would be clear policies for the selection of the right family member to take over.

It would also provide clear guidelines for employing family or non-family members and an impartial performance-based promotion of employees which is essential to the sustainability of the business. A solid governance system helps to resolve conflicts within the family setting, thereby allowing the family members to focus on other key issues of the business. This would invariably lead to an open decision making and procedures that ensures fairness, an essential tool in avoiding tension and thereby raising the reputation of the company.

In line with the above, the following principles of corporate governance [80] must be adhered to in the family business:. More often than not, however, small shareholders with little impact on the stock price are brushed aside to make way for the interests of majority shareholders and the executive board. Good corporate governance seeks to make sure that all shareholders get a voice at general meetings and are allowed to participate.

In particular, taking the time to address non-shareholder stakeholders can help your company establish a positive relationship with the community and the press. All board members must be on the same page and share a similar vision for the future of the company. Underpaying and abusing outsourced employees or skirting around lax environmental regulations can come back and bite the company hard if ignored. A code of conduct regarding ethical decisions should be established for all members of the board. Good corporate governance therefore strengthens and clarifies the activities of the family business while improving its competitiveness.

Proper functioning and transparency of the roles and responsibilities of all organs in the firm are in the interest of the owners, other stakeholders and the whole company. It is particularly essential in family business that the roles and responsibilities of the distinct owners, operative executives and the family are clear and that they are jointly defined and approved. Family businesses also utilize the organs of corporate governance in a specific manner. In family businesses, jointly agreed corporate governance practices primarily act as concrete tools for developing and controlling business activities.

For instance, the owners are aware of their various ownership roles and influence; the board of directors and the managing director have their own clearly defined roles and responsibilities, as do the council of owners. The clearly defined corporate governance of family business also creates added value to those activities with external stakeholders, for instance, in financial and investment processes.

Governance is concerned with all of the ways that the interest of owners is reflected and implemented in the organizational system. The financial and economic crisis in shook many top family businesses in the world, leading to an erosion of their business base. The crisis wiped out some of the most prominent family business groups in the world. The crisis has generated a lot of interest. Many scholars have attempted to examine the causes as well as to search for ways to reform.

If the goal is long term continuity, this points to the need to institutionalize the roles and relationships that are present in the family business, rather than simply rely on current relationships.

Corporate Governance

In short, long term business continuity requires there to be clarity as to how the family business will be governed. All family governance structures and institutions require a certain degree of formalization if they are to function well. Efforts to formalize will mostly relate to the business itself. The family aspect is what differentiates family businesses from their counterpart non-family businesses.

As a consequence, the family plays a crucial role in the governance of these businesses. When the family is still at its initial founder s stage, very few family governance issues may be apparent as most decisions are taken by the founder s and the family voice will be still unified. Over time, as the family goes through the next stages of its lifecycle, newer generations and more members join the family business. This implies different ideas and opinions on how the business should be run and how its strategies are set.

A well-functioning family governance structure will mainly aim at:. Developing such a governance structure will help build trust among family members especially between those inside and outside of the business , and unify the family thus increasing the viability chances of the family business.

Overview of Global Trends

First attempts at written policies usually are brief documents that state a general family vision and mission with respect to the company. The next level of formalization comes with the need to develop a family employment policies, which becomes more apparent when the company reaches the sibling partnership stage. The policy sets clear rules on terms and conditions of family employment within the firm.

For some families, these rules stipulate conditions of entry, retention and exit from the business.

Global corporate governance: debates and challenges | Emerald Insight

In their third, fourth and succeeding generations, family businesses can barely survive unless full family governance policies are developed, written and communicated within the family and the business, and also to other outside stakeholders. This document covering all of these policies is commonly called a family constitution. If the need of one domain has no way to be represented, they do not just evaporate, they find another outlet.

This is like the displacement of an emotion. For example, if there is no way for ownership issues to be expressed they appear in the bad and board meetings turn into shareholders meetings 1. This points to the importance of having appropriate structures and forums so that the interest of the family circle and the interests of ownership can be properly expressed.

Basic governance structures in a family business can therefore include:. From there a particular family might decide that it also needs one or more committees as depicted in Figure 1 below, for example a career planning committee. A simple diagram reflecting a basic governance structure for a family business could be as in Figure 1. In looking at the definitions of what a family is, the concept implies certain links based on relationships of trust.

This reduces the costs of running the enterprise because it lowers the costs of supervision while providing a safeguard against opportunist behaviour and may form the basis of moral integrity [81]. Trust may provide a competitive advantage to organizations that base their governance mechanisms on it [82] -[84]. However, the evolution of family businesses and the accompanying changes in the relationships of those involved in the different sub-systems may damage that trust. Thus, succession in the form of a sibling partnership or a cousin consortium will be linked to changes in the patterns of interrelationships in the families, which may weaken trust and make it necessary to invest in governance mechanisms in the family area in order to strengthen it [84] -[86].

Summary Roadmap for the New Paradigm

Family governance can therefore be defined as the set of institutions and mechanisms whose aim is to order the relationships occurring within the family context and between the family and the business. As the family passes through the evolutionary stages these family governance matures into a more formal system through the application of corporate governances principles. Qualitative research seeks to explore a specific phenomenon, not to prove a prediction.

From a methodological. Figure 1.

12222 Global & Regional Trends in Corporate Governance

Family governance structure. As Kontinen and Ojala [88] mention in their literature review about the state of the art in the field of the internationalization of family business, there is a need for case studies focusing on the questions of how and why companies make decisions and act in a certain way. It is recognized that previous studies have greatly emphasized quantitative research methods with a focus on positivistic measures, in order to evaluate the internationalization of family businesses from a scientific point of view [88] [89].

This spurred the present researcher to conduct qualitative research, which will allow a more in-depth investigation on a micro level. Case study research involves an in-depth study of an individual or group of individuals. Case studies often lead to testable hypotheses and allow us to study rare phenomena. Case studies should not be used to determine cause and effect, and they have limited use for making accurate predictions. Describing atypical individuals may lead to poor generalizations and detract from external validity.

This implies that the findings are described with the help of an interpretation process, which investigates the linked activities, experiences, believes and values in the case [90] -[92]. In most cases the qualitative approach serves to enhance understanding of the area of research. Furthermore, it is also often applied when there is a lack of theories in the specific area of interest [93]. Qualitative data is useful since it describes and captures the situation and emotions of the interviewees [94] , while the quantitative method rather focuses on the facts, testing and verification [95].

Since the purpose of this research is to establish whether good corporate governance structures in family businesses is a must, a qualitative approach seems to be the most suitable one. This way, new knowledge can be gained and an understanding will be deepened, as the interviewees can show how they think about corporate governance structures in their businesses. Two main approaches were used to achieve the purpose of the study. The first was the short personal interview during a familiarity visits to the selected family businesses.

Based on the familiarity visit, interview format and a questionnaire was designed, which were used as a second approach in collecting responses from these family businesses. The questions were structured in such a way to provide information on family governance structures and corporate governance institutions in the business and how vital these are to the conduct of their businesses.

A purposive sampling technique was used to select one hundred and twenty family businesses located in various parts of Ghana. Purposive method was used because these businesses are scattered all over the country. If the variables are independent, the observed correlation matrix is expected to have small off-diagonal coefficients.

Thus, the hypothesis that the correlation matrix is an identity matrix is rejected. The communalities output presents the communality of each variable i. Since the principal components method of factor extraction was used, as many factors as possible were computed as there are variables.

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  • When all factors were included in the solution, all of the variance of each variable was accounted for by the common factors. Thus, the proportion of variance accounted for by the common factors, or the communality of a variable is 1 for all the variables. In Table 2 , the total variance explained presents the number of common factors computed, the eigenvalues associated with these factors, the percentage of total variance accounted for by each factor, and the cumulative percentage of total variance accounted for by the factors.

    Although twenty factors have been computed, it is obvious that not all twenty factors will be useful in representing the list of twenty variables. In deciding how many factors to extract to represent the data, it is helpful to examine the eigenvalues associated with the factors. Since fifty-two 52 variables were considered for this study, the criterion of retaining only factors with eigenvalues of 1 or greater was used and the first four factors were retained for rotation. These four factors account for That is, almost The remaining forty eight 48 factors together account for only approximately 6.

    Thus, a model with four factors may be adequate to represent the data. The pattern matrix shows the loadings of each of the variables. This shows the variable loadings on the four 4 factors with forty five 45 variables loading more than 0. Now critically looking through the. Table 1. Table 2. Total variance explained. Here, the main loadings on component 1 are variables: Shareholders are provided with sufficient company information, I am aware that I carry legal risk, I am aware of the level of remuneration of senior management in the business, the development of governance measures have kept up with the growth of the business, and suitable performance management systems are in place for the board, the contribution of the board is effective with loadings 1.

    However, the main loadings on component 2 are variables: Company has a definitive constitution with regards to its business interests and family members are provided with sufficient company information with loadings 0. Also, the main loadings on component 3 are variables: My performance is monitored and managed and the company has a well policies and guidelines that regulate all the perks and benefits that I receive with loadings 0. Further, component 4 had the main loadings as follows: You regard this as a family business and the company has other sister companies with loadings 0.

    From Table 3 , executive management has about 0. This indicates that there is a strong relationship between executive management and the corporate governance of the family business system. It can also be observed that 0. The purpose of this study was to investigate whether a corporate governance structure is a must for family businesses.

    The main question with respect to whether good corporate governance practises can lead to improved performance of family businesses or not.

    Global corporate governance: debates and challenges

    To answer this question, we derived two major research hypotheses, each focusing on a different aspect presented in the frame of reference. The aim of this study was therefore to contribute to the on-going debates in the field of family business corporate governance. With this paper we advance the understanding of how and why family businesses set up their governance structures and consequently contribute to an area where a lack of qualitative research exists.

    The study proves that the issues of family business corporate governance come to the fore when the business owners consider major transitions such as the sale of the business or succession planning. It was realised that although informal governance in some family businesses seem to work well, there is still a need to have a more formal corporate governance structure to plan ahead for the business.