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NON-LISTED

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Alla Khodzhaian

on 30 October 2012

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Transcript of NON-LISTED

Made by Alla Khodzhaian Corporate Governance of non-listed companies AGENDA 1) Non-listed companies: definition and types European Confederation of Director's Association (www.ecoda.org) published a Corporate Government Guidance and Principles for Unlisted Companies in 2010. Family Business is a Vital Part of World Economy. Corporate Governance of family business: challenges and solutions Marina Malevich Abdur Rahman Mohammad Abu Sufian 4) Corporate governance of family business: challenges and solutions 3) Family business as a dominant form of business among non-listed companies A non-listed company IS a company whose shares are not listed on the Stock Exchange Very often, unlisted companies are very small and do not trade on an exchange because they do not meet market capitalization requirements. Non-listed companies include: Start-ups FAMILY BUSINESS private equity-owned companies joint ventures and subsidiary companies as well as state-owned companies and social profit organizations Unlisted companies are of particular importance in countries with less developed capital markets, where the vast majority of companies are not listed on a stock exchange or regulated market. But even in more developed economies, most small and medium-sized enterprises are not publicly listed on regulated equity markets According to The Firm Family Institute, over 90% of all business enterprises in the U.S. are family-owned and 60% of all employees are in family-owned businesses.

J.H. Astrachan and M.C. Shanker, "Family Businesses’ Contribution to the U.S. Economy: A Closer Look,” Family Business Review, September 2003

http://www.ffi.org/?page=GlobalDataPoints A company is a family business if its ownership is wholly or substantially in the hand of one or more families, and the family has control over the management of the company

(http://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusines_country_fiche_portugal_en.pdf) Family business covers about 70-80% of the Portuguese firms and maybe more than 60% of the GDP and of 50% of the workforce

http://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusines_country_fiche_portugal_en.pdf A family business refers to a company where the voting majority is in the hands of the controlling family; including the founder(s) who intend to pass the business on to their descendants

IFC Handbook http://www1.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Corporate+Governance Family businesses create an estimated 70% to 90% of global GDP annually

http://www.ffi.org/?page=GlobalDataPoints In UK almost one-third of UK employees work in family-owned enterprises, which account for 65% of all UK businesses and contribute nearly 41% of GDP.

http://www.ffi.org/?page=GlobalDataPoints

http://cdn.intechopen.com/pdfs/31898/InTechFamily_businesses_the_extensiveness_of_succession_problems_and_possible_solutions.pdf http://www.almasahcapital.com/uploads/media/MENA_Family_Businesses_Report__17-Apr-11_.pdf http://www.almasahcapital.com/uploads/media/MENA_Family_Businesses_Report__17-Apr-11_.pdf Good corporate governance is particularly important to the shareholders of unlisted companies. In most cases, such shareholders have limited ability to sell their ownership stakes, and are therefore committed to staying with the company for the medium to long term. This increases their dependence on good governance. Importance of GOOD Corporate Governance for non-listed companies Good governance can also play a crucial role in gaining the respect of key external stakeholders. In an environment of mounting societal scrutiny towards the business world, even unlisted companies have to devote attention to their stakeholder responsibilities. Corporate reputation will benefit from a gradually increasing transparency and accountability An effective governance framework defines roles, responsibilities and an agreed distribution of power amongst shareholders, the board, management and other stakeholders. Especially in smaller companies, it is important to recognise that the company is not an extension of the personal property of the owner. 2) Importance of good Corporate Governance for non-listed companies “Family businesses constitute more than 85% of non listed businesses in the MENA region.”

Pierce (2008) Corporate Governance in MENA “Family businesses constitute more than 85% of non listed businesses in the EU.”
Pierce (2010) Corporate Governance in the European Union single owner-manager companies Challenges 1) Investors—both shareholders and creditors—may look with distrust on family-controlled companies, because of the risk that the controlling family may abuse the rights of other shareholders. So investors likely will scrutinize such companies with care before taking the plunge and investing 2) OR How can the company ensure that these external investors are fairly treated? These investors might have interests and views on the role and results of the business that diverge from the controlling family’s point of view 3)The challenge is to keep the generations and all family members united and their interests aligned over the years. When families reach the third and fourth generations, their members may barely know each other. It becomes more difficult to maintain aligned interests within a large family. According to Nancy Bowman-Upton in the Small Business Administration publication Transferring Management in the Family-Owned Business, it is estimated that less than 33% of family businesses survive the transition from first generation ownership to second generation ownership 4)Inability to separate your business and personal lives if you do not find a way to stop the feuding, it will be absolutely impossible to define and achieve common goals for the business. In addition, excessive conflict in your organization can increase employee turnover and create a hostile work environment 5)Possible lack of objectivity Everyone wants to help out family, but hiring, promoting, and paying someone based on a familial relationship rather than on their actual merits and abilities, is a recipe for disaster.
You will quickly find that non-family employees will lose the motivation and desire to work for you. In addition, family employees may become complacent because they will not face consequences for non-performance.

http://familybusiness.about.com/od/managementandoperations/a/commonthreats.htm 6)The problem of information asymmetry
7) The problem of attracting external independent NODs as FOBs don't want companies be managed by NODs Solutions 1) Design a formal organizational structure that clearly defines the roles and responsibilities of all senior managers and family members. This should be based on the company’s current and future business operations’ needs 2) Connect Managers' Income to the profits of the company. Thus, the manager is interested in the prosperity of the company. On the other hand, provide opportunities for advancement in your business for non-family employees 3)Clearly define the goals of the company and make sure everyone is on the same page 4)Establish a remuneration system that provides the right incentives to all managers depending on their performance and not on their ties to the family 5) Keep an open line of communication at all times. You should listen to not only your family members but ALL employees- their complains, suggestions, worries etc. 6)Be prepared and create a succession plan to ensure your business lives on after you are gone and prepare future generations of owners 8)Address all concerns quickly and in a non-emotional manner THANK YOU FOR ATTENTION
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