Mustafa Hussain, a solicitor within Taylor Wessing’s wealth group, discusses the safeguards that family businesses should have in place to protect themselves.

Mustafa Hussain, a solicitor within Taylor Wessing’s wealth group, discusses the safeguards that family businesses should have in place to protect themselves.

“This is the most humble day of my life”. These were the words with which Rupert Murdoch, a man once regarded as one of the most influential and powerful people in the world, marked his appearance before a Commons committee of MPs on 19 July. This is perhaps the last sentiment anyone would expect such an established media mogul and billionaire investor to confess in this age of ‘trial by media’. But perhaps more revealing was Murdoch’s performance itself – reported by the press as “faltering” - and the arguable revelation that he is anything but informed of, and protected from, the goings on within his business.

Prior to his appearance before MPs, the public perception of Murdoch was well in keeping with the image of a patriarch whose family business represented the toil of more than half a century’s work. The tale is a familiar one: the founder’s journey from shirtsleeves to Saville Row suits, the subsequent founding of a dynasty, birth of an empire and establishment of a legacy.

Families at war

Whilst many family businesses have suffered from much publicised disputes (think of the rift between Adi Dassler and his brother, which resulted in the establishment of Adidas and Puma as rivals, or the fall out between members of the Gucci family), what is truly rare is to see a head of the family such as Murdoch suffer such a sudden and shocking assault in the public eye. The case was compounded by Murdoch’s previously enigmatic profile and the physical assault he suffered at the hands of a shaving foam-wielding assailant. Family business owners around the world will have watched this with horror. Many of them will ask themselves (and their advisors) how they can or should be protecting themselves with corporate governance that enables accountability, but also provides for effective delegation.

Many family businesses, particularly those from growth economies such as the BRIC and Middle Eastern markets, have become large and important conglomerates in the last few decades. They are often helmed by a leadership figure of defined character, unrivalled vision and unqualified work ethic. Their success lies in the relentless implementation of business plans pushed by the owners and executed by management. But that is exactly why the Murdoch appearance will be a wake-up call to many family business owners, particularly those who pushed business development without attention to corporate governance.

The admission by Murdoch that the infected parts of his business comprised less than one per cent of his company will have sent cold shivers up the spines of family heads who assume that they may be held as equally and visibly to account in respect of what may be a nominal part of their enterprise. Family conglomerates, particularly in the East, usually include automobile dealerships or heavy manufacturing and construction. All it takes is for a car safety fault or a collapsed bridge leading to death and destruction and the hunt for a scalp begins. And in the internet age, only the most senior scalps will do. Murdoch was vocal on his refusal of personal liability – insisting that he had entrusted the people he “trusted to run” his company “and the people they trusted”. But what is the correct way of documenting corporate governance and what are the safeguards that family businesses should have in place to protect themselves?

Corporate governance’s crucial role

A corporate governance policy is vital to commercial management and can help ensure the sustainability and proper organisation of a family business. Such a policy aims to allow the family business to operate with strategic control, but without interference. It aims to hold the business together, but also to demonstrate the owner’s commitment to high standards of corporate governance. Simple but effective statements regarding the details of how a family business and its owners will comply with relevant and proportionate principles of governance, details of best practice, and the establishment of boundaries between owners and managers can be included. This is particularly helpful for situations where owners and managers are members of the same family and wish to ensure a smooth working relationship.

A delegation of authority policy can supplement the corporate governance model. Such terms will establish the principles by which the business is legally and fiscally structured, organised and operated. There are clear explanations of where responsibility lies and how authority is delegated. Duties, authority limits and job descriptions are clarified in writing in a document that can be universally accepted and easily referred to.

Extra provisions

If relevant, policies can also refer to board composition (ensuring there is a balance between family and non-family members, independents and experts etc). Terms of office and the role of the chairman can also be clarified. Importantly, requirements for formal minutes and written records of important meetings can also be provided for.

One of the greatest challenges to Murdoch’s empire has been the “perception” of wrongdoing. For a family business, clarifying in corporate governance documentation that the company should be run with ethical leadership, a focus on accountability and value, a timely flow of information and effective decision-making processes can be a good first step to evidencing the founder’s intention and providing a moral compass for the company and best practice by its staff.

As the embodiment of the character of a company the founder or head of the family will often have a dedication and strength that will be valuable to the business, but can also be an Achilles heel. There is no doubt that Murdoch’s perseverance is what generated his phenomenal success, but one cannot help but wonder if at 80 – no age to be facing physical attacks - the media mogul should have passed on the leadership of the business much sooner.

Succession and inheritance of ownership are often taboo or “difficult” issues which owners are reluctant to deal with. But the words of one of the MPs who questioned Murdoch ring true: “you are ultimately responsible for the corporate governance of News Corp.” Such an unequivocal reminder of where the burden lies is reason enough for a re-evaluation of difficult questions. It may be far less painful to have a succession plan, family constitution and trust in place well before the fingers start to point than to face a trial by media or family dispute. Perhaps that is a lesson that many family business owners will learn from another man’s humbling experience.

Mustafa Hussain is a solicitor with Taylor Wessing and author of the "Family Business Passport".