1. Recap…. Evaluating BOARD PERFORMANCE

2. Drivers of Boards Performance Evaluation Regulators  Mandatory in UK since revision of Combined Code on CG in 2003  In 2004, NYSE introduced similar rules in USA Pressures from Stakeholders  Investors  Fund managers  Insurers  Capital Markets  Media

3. The Evaluation Process Who should conduct the evaluation Who is to be evaluated What are the issues to be covered What form should the evaluation take How should the information be handled

4. Who should conduct the evaluation Internal evaluation  Most popular approach  Advantage is first hand knowledge  Peer review – reluctant to criticise as long as basic standard of behaviour is met  Easy to organise and inexpensive External consultants  Greater objectivity  Lack nitty-gritty of business  Viewed with ill-disguised scepticism  Expensive Hybrid system  Combining self-assessment with consultants conduct interview

5. Who is to be evaluated Entire Board  Chairman  Executive Directors  Non-executive directors All main committees  Audit committee  Nomination committee  Remuneration committee

6. What are the issues to be covered Quantitative measures  Structural Composition of committees Background of board members  Procedural Regularity of meetings Circulation of agendas Qualitative measures  Climate & culture of the board  Team dynamics  Trust & relationship between board members

7. What form should the evaluation take Questionnaires  Quick and inexpensive  Provide comparable data  Impersonal, threatening, lack depth Interviews  More personal  Create a much deeper pool of data  Slow, time-consuming, expensive Combination of Questionnaire & Interview followed by a discussion – most desirable

8. How should the information be handled Confidentiality issues Sharing of individual directors data with chairman and executive directors data with CEO Discussion in a follow-up session One-to-one session for each board member with the Chairman, in presence of external facilitator, if required Board discussions to address collective issues

9. Boards Performance Evaluation Highly demanding process Prerequisites  Full support of Chairman & CEO  Involvement of Directors  A productive relationship between Executive and non- executive directors Outcomes  Enhanced awareness of important issues  Encouragement to focus & adjust its thinking and action Avoid  Making it a ritual  Keep the process fresh by changing it

10. Corporate Governance in Family-owned Businesses

11. FOBs include all enterprises that are owned, managed or influenced by a family or families FOBs are one of the foundations of world’s business community Internationally FOBs are the dominant form of business organisations  75% of registered cos. in UK are FOBs  90% of registered cos. In India & other emerging markets are FOBs Governance in FOBs is crucial to the contribution to national economies and their owners Governance is more complex because family relationships have also to be managed in addition to business relationships

12. Family-owned Businesses Strengths  ‘kith-and-kin involvement  Family commitment – single goal  Interests of owners and managers are aligned  Authority of founder is accepted  Long term view is taken as business is built for future generation – leading to Concern for firm’s reputation Regard for interests of employees and community Relationships with suppliers, customers and neighbours

13. Family-owned Businesses Risks  No separation between family relationships and business relationships  Business issues are not separated from family issues  With firm’s growth and widening family circle business hierarchy may not match that of the family  Sharing of power with non-family managers is hard for the family members  Growth leads to tension between owner/managers and owner members in the family  Further growth leads to relationships changing from essentially family relationships to essentially business relationships--- hard to accept for family  Growth splits single family mgmt. group into 3—family owners; family owner/managers; non-family managers

14. Key generic differences FOBs are owned rather than treated as an investments  Business issues spill over into family life  “Clogs to clogs in three generations”  Distinguish ownership from management Families own their businesses for the long term and as an inheritance for successors  Not answerable to external investors  Take a long term view about profitability & growth

15. Families tend to grow their businesses organically rather that by acquisitions  M & A bring alien cultures and hidden risks into the Group FOBs are funded and run conservatively in order to maintain control  Focus on equity to fund their business  Use retained profits or short-term overdrafts to fund cash needs Key generic differences

16. Foundation for good governance Governing the family  Structural division between the governance of the firm and the deliberations of the family  Formation of a family council having all owners and owner/managers as members  Helps to insulate the firm from family rivalries or undue influence

17. Foundation for good governance Organisational Imperatives  Recruit and retain best talent for the business Family appointments Assessment and promotion issues Barrier to entry—career management issues  Develop a culture of trust and transparency Equal opportunity Fairness in rewards between family and non-family members  Define logical and efficient organisation structures

18. Foundation for good governance Opening the company to wider influence  Invite external shareholding from those who can bring a wider perspective  They may become non-executive directors  Families have significant influence even with a shareholding as low as 20%

19. Foundation for good governance The Board of Directors  FOBs like to limit board appointments to family members  It potentially confuses company issues and family issues  It also deprives co. of wider knowledge and experience  FOBs ‘come of age’ when they appoint external executive directors  Appointment of external Chief Executive is a key step in separating ownership from control  Board to concentrate on policy, strategy and direction rather than on management

20. In conclusion… Clarity of role An Effective Board A logical organisational structure Fair and transparent recruiting and promotion policy are key drivers to ensuring the longevity and success of family owned businesses