Small business and governance
The Secret to succeed
Small businesses are driving force in Italy. At the source of their success are a number of different ingredients: among the main ones are certainly effective management of the problems facing entrepreneurial families such as generational succession; quality of corporate governance; and creation of a good incentive system. We have understood how to answer these needs through a series of custom-tailored services. Thanks to the experience developed over the years, Consulenti Italiani Business has created. a range of research platforms on these issues, including the observatory on Corporate Governance Excellence in Italy.
The driver behind Italy
Five million Italian businesses are built on the family. What are generally known as family businesses could easily be defined as the driver behind Italy. They make a significant contribution to GDP, guarantee jobs and raise the quality of employment. But not everything that glitters is gold. Family ties often represent an obstacle to the long-term continuity of a company. There is the knotty problem of generational succession, and not everyone makes the transition.
The family business is the model that most closely reflects the cultural orientation of Italian business which is famous throughout the world for being creative, tenacious, hard-working and quality-oriented.
Between 80-90% of all companies are family-owned;
as are over 40% of the 300 largest companies.
These are the highest percentages in Europe. Overall, Italian family-run businesses number about 5 million and, also taking into consideration the smaller companies, contribute 80% of Gross Domestic Product, making them a cornerstone of the country’s economy.
Therefore, when family-run businesses function well, the entire country benefits.
Business and Family: two distinct aspects
Family businesses have many strengths, but also some defects.
At the basis of all this is the fact that family and business are two distinct aspects based on completely different values: solidarity and protection being the first and risk, competition and meritocracy the second. In family businesses these two aspects are seen in structural areas that overlap and often risk triggering conflict, tension and problematic situations.
The knotty problem of generational succession
According to a report based on research conducted by the European Commission, less than. 33% of companies on the continent are able to maintain operations and ownership following the transition from the first to the second generation, and only 15% are able to assure continuity following passage from the second to the third.
Over the next ten years, a million small- and medium-sized companies will have to face this phase—more or less 100,000 every year—and it is calculated that, without adequate transitional planning, at least half are destined to disappear.
Therefore, family businesses must adopt the right mechanisms to allow them to optimise co-existence and plan continuity in order to confidently face the delicate phase of generational succession.
The three cornerstones
The distinguishing attributes of Consulenti Italiani Business services are:
Professionalism. We provide support to families through an approach that is clear-cut, all-inclusive and collaborative. It is designed to cover all major aspects to assure unified action (legal, strategic and organisational considerations) and is based on deep-seated knowledge of the dynamics typical of Italian family-run businesses.
Confidentiality. We assure that all information regarding each individual case is accessible to only the small group of individuals working on it. This guarantees confidentiality and integrity.
We are always ready to provide services that meet the special requirements and needs of our clients.
A ‘custom-fit’ approach
Our professional services, tailor-made to the specific needs of each client, are:
Agreement/Statute among members of the family. This involves a system of shared rules, criteria and mechanisms through which family members establish the “rules of the game” and their behaviour towards the company in order to safeguard common interests and the greater good.
The method by which these delicate issues are taken on is of fundamental importance and represents one of the most unique aspects of our approach.
Working alongside younger family members during their professional development in order to maximise their potential for self-realisation.
Developing within family members knowledge and skills to effectively carry out the role of partner and member of the board of directors.
Creating and implementing bodies and mechanisms to promote dialogue and positive coexistence (family councils, etc.).
Patrimonial strategy. Consulenti Italiani Business provides support to clients in defining and applying a strategy appropriate to the quality of life of family members, their economic needs, control of the company and its governance and the risk level of investments and related balancing requirements.
Our major clients belong to different groups and these include:
Family businesses: Companies owned and controlled by a single or limited number of families.
Companies and institutions: Entities which deal with family businesses.
Individuals: People with a significant patrimony who need to create a strategy for its optimisation, both present and future.
Basic points of Reference and Governance
A good system of governance is crucial
The quality of corporate governance is one of the most important aspects regarding investment choices for institutional investors, and it is fundamental for guaranteeing a company value creation over the long-term. Therefore, being able to depend on a good system of governance becomes a determining factor for competing on both national and international level.
The quality of Corporate Governance, i.e., all those rules and mechanisms through which companies are managed and controlled, is a decisive factor in a company’s ability to create value in a sustainable way.
In other words, a good governance system allows for better management of a company. Although not claiming a causal relationship, our Observatory on Corporate Governance Excellence in Italy has shown that if a company has good Corporate Governance, it is very likely that its performance will be superior to that of its competitors.
In addition, the market itself is increasingly aware of the quality of governance systems. A recent study of ours shows that this corporate aspect is one of the most important criteria when institutional investors select their investment targets: those companies most committed to implementing effective governance systems are those that are able to attract more capital to be used for their growth.
This is true not only for large listed corporations, but also unlisted companies that are evaluated according to the characteristics of their stakeholders (banks, suppliers, customers, etc.), not just on the basis of traditional balance sheet indicators, but also in terms of other corporate aspects, of which the most important is the quality of the governance system.
Corporate Consulting Services
Also thanks to the significant database developed by the Observatory, Consulenti Italiani Business has developed a unique methodological approach (the Index of Governance Excellence – EG Index) that provides an objective evaluation of the quality of a company’s governance system through the mapping of a portfolio of qualitative and quantitative indicators. This tool, together with the analysis of corporate documents and one-to-one interviews with members of the board of directors and committees, and corporate heads and management, provide a rigorous and detailed picture of the state-of-health of the governance of each company.
This analysis makes it possible to highlight the strong points and potential areas for improvement of the governance system, both in terms of the sampling of companies used as the benchmark, as well as requests from the market (first and foremost, institutional investors).
Consulenti Italiani Business assists Boards of Directors with services designed to improve the efficiency of governance system:
Profiling of Board members
Governance Disclosure & Transparency: improve the transparency of governance system functioning for those outside the company
Assistance for Committee activities
Strategic Framework and Management
Consulenti Italiani Business assists family businesses during key moments of strategic and organisational rethinking and change through:
collaboration in redefining the Strategic Framework (mission, guiding principles, vision of the future, winning culture, etc.);
redefinition of the roles and responsibilities, and the professionalisation of management bodies;
alignment, involvement and motivation of all owners and the support team regarding the strategic direction and action plan for the future;
support for SME management(delegation and control, responsibility, etc.).
In recent years, remuneration for executives and managers with strategic responsibilities has been one of the aspects of the corporate government system most subject to market scrutiny.
If well-designed, the remuneration system (how much and how a resource is paid) represents a fundamental ingredient to bring the interests–and therefore the behaviour–of executives and managers into alignment with those of stockholders, and to maximise the probability that strategic goals are followed.
Succinctly put, a good incentive system (whether short- or long-term) must be self-financing through improved results!
Setting an effective pay policy assumes knowledge of what the market wants, of good practices and rules in constant evolution.
Our approach is based on long-standing and solid experience in the field, our on-going research activities and regular contact with leading market stakeholders: these factors make it possible for us to offer clients solutions that are state-of-the-art.
Management consulting services
Remuneration Policy Check-Up
Identification of the strong points and areas for improvement of client remuneration systems as compared to a paned of benchmark companies or in terms of market desires (institutional investors)
How much to pay
Supporting in establishing total remuneration and the retributive mix of top management, as well as development of custom benchmarks to establish congruity of remuneration for members of the Board.
How to pay
Design of short-and medium/long-term incentive systems.