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Corporate Governance - A case study on how it might work in practice and help your company move forward

1. Overview of the Company.

This Company is a second generation company trading for over 50 years ("The Company").

It is currently run by 2 brothers and 2 sisters, all of whom own The Company equally ("The Shareholders"). Each Shareholder is married and between them they have 18 children.

Each Shareholder actively works in the business but all are now at retirement age or past retirement age. There is no Managing Director and all key decisions have been made collectively in the past.

Only one of the Shareholders has a son who is employed at the Company at middle management level. None of the other children have a role in the Company.

2. Governance Issues to be Resolved.

  1. 3 of the Shareholders wanted to retire.
  2. There was no succession plan in place.
  3. There was no shareholders agreement in place.
  4. There was no agreement in place to govern if any of the 3rd generation wanted to become involved in the company.
  5. There was no clear vision in place for the Company and board meetings tended to be more informal or procedural based.
3. Corporate Governance Solution

After much consideration the Shareholders decided to:-

  1. Set up a board of directors totalling 5, comprising of 1 member of each family and an independent Non-Executive Director who would also chair the board meetings.
  2. Sign a Shareholder's Agreement between the 4 Shareholders of the Company covering key arrears such as the passing on of shares, the sale of shares, each family having one seat at the board and the selection process for recruiting family members into the business.
  3. The board developed a clear vision for the Company and was then able to determine the resources required by the Company. It identified that 3 key positions would have to be filled to allow the Shareholders to retire.
  4. After an independent selection process the son currently working in the business was identified as the person to lead the business, and the board put in place a plan to support this transition.
  5. After 9 months the 3 Shareholders retired, and 2 became Non-Executive Directors and retained their seat on the board. The new Managing Director succeeded his mother on the board whose involvement with the business ceased completely.

    Outcome
After 12 months the Company had completed a successful transition achieving the following:

  • Management succession completed with 3 key positions filled.
  • 3 Shareholders retired as per their objectives.
  • Board of directors in place to drive the vision, mission and goals of the Company.
  • Shareholder's agreement signed.
  • Mechanism agreed to allow the Company's transition to 3 rd generation seamlessly.
  • The transition had minimal impact on the trading of the Company.



 

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