Earlier this year, investors were negatively surprised by the news of a material fact regarding accounting inconsistencies at Americanas. The financial institutions, still unable to understand the impact of these inconsistencies, denied the request for a discount and renegotiation of the debts, causing the collapse of the share value and the company’s request for a protective judicial measure to prevent creditors from blocking its assets.
From the announcement of this material fact, a war began in the Courts, with creditors eager to produce evidence that the reported inconsistencies are, in fact, fraud, and that, therefore, the senior management and the shareholders involved must be held liable for the acts that harmed the creditors.
Certainly, much water will flow under the bridge before the entire problem is unraveled, from those responsible for perpetuating the inconsistencies to the punishment of those involved by market agents.
But what can companies with family management learn from this event, given that, on the path of sustainable growth of the family business, the road toward professionalization cannot be avoided? And given that professionalization requires, among other things, the hiring of non-owner executives, with the shareholders’ migration to the Advisory or Administrative Board.
One lesson for family businesses that can be highlighted is the periodic realignment of interests between owners and managers in order to avoid conflicts of interest. And what is the potential conflict of interest between owners and managers?
While owners wish to maximize the value of the company and its perpetuation over time, managers wish to maximize their compensation and benefits. And, in this divergence of interests, managers may not be aligned with the initiatives for creating value for the company and its sustainable growth in the long term.
In the (re)assessment of the interests and, especially, the objectives of the managers in the family business undergoing professionalization, it is advisable that the owning family, which is not yet mature regarding good governance practices, evaluate the emotional aspects that permeate the relationships and that impact the conduct of the business.
Some examples of common situations in family businesses that impact the management of family businesses are:
- a marked presence of shareholders in management and centralization of decision-making power by the shareholders. If the “owner ends up resolving matters their own way,” managers may fail to make necessary decisions out of insecurity that the decision will be disapproved by the shareholders;
- another effect of the presence of shareholders in management is that managers may shape their actions with behaviors seen as appropriate for the shareholders, to the detriment of the benefit to the business. That is, they will behave in a way that pleases the owning family, which may not always be what is best for the business;
- the absence of clear and precise meetings between managers and shareholders. Unfocused meetings generate information asymmetry. With incomplete information, the chances increase that the decisions made by managers will be mistaken;
- if the meetings between shareholders and managers are informal, without the formalization of decisions and guidelines for the managers, the absence of records of the decisions causes not only the non-implementation of decisions, but also, and more seriously, the failure to evaluate the results of the managers’ management actions in the business.
Regarding the situations highlighted above that commonly exist in family businesses, it is important to periodically revisit the contract entered into with the managers in order to review the premises of the engagement, the rights and duties and, especially, the objectives and the variable compensation.
It is also important to implement governance rules with the implementation of executive committees in the areas of management, finance, innovation and others, with the formalization of meetings in minutes in order to facilitate the control of the activities carried out and the return on the actions and/or changes implemented.
The alignment between the role of the managers and the interests of the owning family is essential to maintain the competitive advantages of the family business, such as: long-term strategic focus, the ability to respond quickly to changes in market circumstances, flexibility to seize opportunities, and know-how in the company’s core business.
Therefore, the Americanas case teaches family businesses that professionalization first requires the family’s clarity regarding its “owner objectives” in the short, medium and long term. And, second, the support of legal and business specialists who help the owners to formalize the tangible and measurable aspects of their business for their management team.
First published on the profile of Juliana Assolari, owner-partner of Lassori Advogados.
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