Question

According to the article, good governance is imperative because:

a. a family-owned business is more likely to sustain the founder's long-term vision for the company.
b. managers and family members will be able to focus on productivity and profits instead of family issues.
c. it will ensure that members of the older generation of the business retire and make way for younger generations.
d. it guarantees that executive and non-executive family members remain in agreement on shareholder issues.

Answer 1

Good governance in a business is crucial for aligning the firm's actions with shareholder interests, beyond just internal family considerations. It ensures that the company is managed in a way that secures returns for shareholders and corrects any misalignment between executives and shareholders.

Step-by-step explanation:

Good governance is imperative in a business setting because it serves as a structure that guides corporate activities and ensures that actions are aligned with the interests of the shareholders.

Without such governance, there could be a conflict between the objectives of top executives who have significant influence over the board of directors and those of the shareholders.

An effective board of directors is vital in upholding corporate governance, which aims to monitor executive actions and ensure that the firm operates for the benefit of its true owners, the shareholders. It is not so much about guaranteeing generational shifts or continual family agreements, but about the broader oversight of a company to keep it aligned with its commitment to the shareholders and their investment.

Therefore, the notion that good governance is essential is based on the premise that it will lead to a focus on productivity and profits and not on internal family issues or conflicts.