Clash of views on governance in family businesses here

Most Singapore family businesses here think they are adequately governed, contrary to the general view of KPMG.

Close to half of the 41 family businesses based here which were surveyed by KPMG and CPA Australia in August and September said that their current governance structure is optimal.

Another third think only minor tweaks are needed.

But KPMG, in a study on family businesses in Singapore released yesterday, found this surprising. "In our experience, many non-listed family businesses are in need of change in this area," the report said.

"For example, in one company, the business has been handed over to the son. However, the father is the chairman and still makes the key decisions for the business. Family councils are still uncommon in Asia," KPMG said.

Most of the family businesses surveyed - more than half of whom had an annual turnover of more than $20 million - are large enough to have formal governance structures in place, it added.

Among those with governance practices, financial performance, operational performance, customer feedback and the performance of the executive management team are seen as most critical in assessing how well a business is governed.

Far fewer undertake independent reviews of the management team or appoint an informal board of directors.

And, in Singapore's Asian context, it is often the men of the family who still call the shots with 70 per cent of board chairmen being male family members; 5 per cent, female and 80 per cent of chief executive officers or managing directors being men; only 7 per cent of the firms polled are run by women in the family.

The businesses polled mostly kept things within the family too. None of the CEOs or MDs and 5 per cent of their board chairmen are non-family members. That has its benefits, as family members tend to have a greater sense of ownership and are thus more likely to rally round the business when times are hard, unlike in professionally managed businesses where talent may "jump ship", KPMG said.

However, limited external influence raises the question of whether Singapore's family-run businesses have sufficient rigour in their governance practices, the report said.

It also raises concerns over succession planning, such as whether choices are narrowed by not looking outside the family members.

The survey found that even though family businesses see the preparation and training of a successor as a top challenge, only half have CEO succession plans in place.

"One key challenge is handing the business to the best person for the job, as occasionally the best person may not be from the 'right generation'. For instance, the best person for the CEO job may be the son of the second son of the patriarch," the report said.