Institutionalization of Family‑Owned Companies

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Corporate Governance

Institutionalization of Family‑Owned Companies

There is no shortage of privately held companies in the CIS. Most of them emerged with the rise of private ownership that followed the Soviet Union’s collapse, and throughout their brief corporate histories, the personalities of the founders have typically played a dominant role. Today, the involvement of owners in day-today management often remains substantial at private companies, and the decision-making process tends to be largely informal.

As private businesses mature, founders may want to move away from close involvement in operations and pass the helm to the next generation, or to outside executives. Founders and their families would then typically retain board membership after the succession, thus remaining involved with the company at the strategic level. 

Regardless of any plans for an IPO, any business will face the necessity to establish a corporate governance system that is able to support its advancement toward its long-term goals. One important objective of corporate governance is to facilitate a smooth transfer of executive functions from the founder to successors to ensure business continuity and progress without its founder at the helm. Yet another critical objective is to draw a clear distinction between private and corporate assets in order to determine the role of each family member in the running of the business and to coordinate the decision‑making process among family members.

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