ContNews: corporate governance in family businesses

The importance of corporate governance in family businesses
(Claudio Mazzaferro)

According to the IBGC (Brazilian Institute of Corporate Governance), corporate governance is the system by which companies and other organizations are directed, monitored and encouraged, involving the relationships between partners, the board of directors, the executive board, the supervisory and control bodies, and other stakeholders.

According to the institution, good corporate governance practices convert basic principles into objective recommendations, aligning interests in order to preserve and optimize the long-term economic value of the organization, facilitating its access to resources and contributing to the quality of the organization’s management, its longevity, and the common good.

This means that for a company that believes in and practices governance, there is no hidden agenda. Transparency is part of everyday life. Accountability becomes elementary, a company ground zero. Corporate responsibility goes beyond this, and may consider the perpetuity of the company from an economic, social, and environmental point of view.

My contact with the subject was in 1999, when Mazzaferro, a family company that is a reference in the nylon business, started the process of succession for the second generation counting on the support of the IBGC. In the beginning, the partners were only two, the founder and his wife. Today there are 18 and it would be necessary to create instruments capable of preserving their rights, as well as the perfect continuity of the company. Since then, we have become a case study that has been presented in several places in Brazil.

Planning was the key word for this process. We operate in the three dimensions of governance: family, business, and property. The challenges were great. The families that own closely-held companies are not always technically and psychologically prepared to implement a corporate governance system. The founder, usually, does not like to face issues related to the formalization of the company, wills, segregation of matters related to the family from matters related to the business, and to have total transparency in the economic conduction.

Mazzaferro had the courage and luck to start this process in 1999, long before the founder, Nello Mazzaferro, passed away in 2012. The company continued to operate without any discontinuity or questioning by the heir partners or any other stakeholder. The benefits were many, such as the perpetuation of values, harmony among family members, tranquility in the succession process, capital management, and especially the continuity of the business.

In this sense, besides the professionalization of the management and the implementation of a code of conduct, the creation of a board was fundamental. It is necessary to count on competent, independent, and paid professionals. About 70% of the board’s time today is dedicated to strategic matters, and the other 30% to matters of a tactical nature. There is a predefined annual agenda that addresses strategy review, strategy deployment, budgeting, talent management, and risk management, among others. The board members have free access to the company’s executives and data and are also evaluated by the chairman.

The journey requires effort, but holds many rewards. The corporate governance system makes the company completely transparent at all levels, facilitating the relationship between all parties involved. The company, the community, and, of course, the family win, as they are freed from conflict.

Claudio Mazzaferro is CEO of Mazzaferro Monofilamentos, lecturer and IBGC-certified board member.

Published in Portal ContNews on August 12th, 2018: