Pleased to join the CBC News Network Weekend Business Panel, alongside Mark Warner, Rubina Ahmed-Haq, and Hillary Johnstone, talking Federal Budget highlights and what’s next for the banking industry, in light of recent failures (also a good opportunity for common sense governance reminders). You can watch our segment here. Some comments on our discussion.
From a corporate perspective, one of the important areas in the Federal budget that family businesses should be focusing on is the intergenerational transfer provisions, in terms of succession. In short, this section addresses past tax related discrepancies that could make it more desirable for business owners to sell their shares to a third party, rather than intergenerational transfer, and identifies two transition approaches.
The issue of business succession is an important one, as many business owners have “overstayed” their time at the helm, with the pandemic resulting in additional delays. The reality is that the majority of small businesses lack a formal succession plan and qualified successors with the necessary funds are difficult to find. In addition, many small businesses have not kept up with marketplace competition and industry trends, which typically results in a declining customer base and value. Business owners don’t only need transition options, they also need to have this important issue brought to the forefront in a constructive manner, otherwise, the likely outcome will be windup or closure. The key message at this point is to get professional advice, in terms of business transition and preparation to do so, as this is best done years in advance. Reading Defusing the Family Business Time Bomb can be helpful to moving this important process along, including identifying steps to take, decisions to make, and the basis of advisor conversations.
The recent collapse of Silicon Valley Bank and weaknesses in others have raised a lot of questions about the stability of this sector, and although the Canadian banking system is not directly comparable to institutions in other countries, the news of recent weeks is an indication of how a ripple effect of concern can travel. A lot has been said about senior management and regulators, and although we do not know all of the details here, situations such as this are a good opportunity to be reminded of governance responsibilities, including the following:
- Boards of Directors have an important role to play, beyond that of the basic governance responsibilities that include representing shareholders and providing oversight; these are givens.
- Board members need to ask the difficult questions, including in terms of adherence to policies and key systems and practices that should be in place.
- Risk management is a critical issue, especially in challenging times; the recent pronounced environmental shift in areas such as inflation, interest rates, and the capital markets are good examples. Communication with the Board should be enhanced during difficult times.
- Board members with a significant level of experience and skill have the ability to add considerable value, especially in the face of challenge. In order for this to occur:
- Board members have to make the effort to do so, in a tangible and practical manner; and
- Management has to “park its ego” and be receptive to this type of advice. CEO’s who surround themselves with weak senior team and Board members are a red flag, to say the least.
- Finally, Board members are not there to be friends with Management, to cheerlead, or provide only the sunny side of input; this does not fulfill the governance role, at its core, nor is it helpful, particularly in times of trouble. Board members who “look good on paper”, but prove to be ineffective in raising the tough questions when needed do little to fulfill their role.
When a prominent business fails, there are many questions to be asked. It is important to remember that the accountability conversation is not just one that involves Management and industry rules and regulations; governance also has a seat at the table.
Thank you for watching and see you again soon.