1. Prof. Waswa Balunywa, Ms. Brenda Wejuli and Ms. Diana
Ntamu
Makerere University Business School, Kampala, Uganda
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2.  Introduction
 Purpose
 Theoretical background
 Literature
 Methods
 Findings and Discussions
 Conclusions
 Recommendations
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3.  Family Businesses(FBs) constitute over 90%
of businesses worldwide ( Lachlan,2011).
 About 33% of FBs are successful in the 1st
generation, while 10-15% make it to the 2nd
generation(Ward, 1987)
 FBs are where management and ownership is
in the hands of the family
 This raises governance issues especially at
the Board level.
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4.  Create the most new jobs in an economy
 Source of livelihood for many families
 Contribute to GDP and economic
growth(IFERA, 2003)
 Businesses are able to be transferred to
several generations
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5.  Boards are one of the most important
governance mechanisms through which FBs
can safeguard shareholders and public wealth
( Cruz et al, 2010, Luio & Chung, 2005)
 Board of Directors Roles are primarily three:
 Strategic
 Service
 Control(Ahmadu, 2011)
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6.  Boards play an important role in strategy and
control of business.
 In family business boards are managed by
family members
 Independent board members play an
important role
 In FBs the independent Board members
appear not to have a role.
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7.  Most FBs emphasize the idea of family
influence through ownership and
management(Chua et al, 1999)
 In FBs Board governance entails avoiding
conflicts between family members’ family
and the business roles while preserving unity
among the family members(Lane et al, 2006)
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8.  Family business boards are typically
dominated by family directors(Voordeckers
et al, 2007;Westhead et al, 2002).
 Few family businesses employ non-executive
directors
 FBs may rely on outside members for
required functional skills and independence
of mind( Milliken, 1999, Roberts et al, 2005)
to perform board control task.
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9. Overall Objective
 To establish the role and contribution of Board of
Directors in the Family Businesses
Specific:
 To establish whether Boards exist in Family Business
 To establish composition of board members in Family
Business
 To establish the role of Boards in Family Business
 To establish whether FBs have outside directors
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10. AgencyTheory( Jensen&Meckling, 1976)
 Most dominant theoretical paradigm for
studies of Corporate Governance(Aguilera,
Gospel and Jackson, 2008)
 Jensen defines agency relationship as a form
of contract between owners(principal) and
managers(Agents)
 The need to adopt the right CG mechanism is
driven by the agency problem that makes it
difficult to bear the cost of monitoring
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11.  The central idea behind the principal-agent
relationship is that the principal is too busy to
do a given job and so he hires an agent(
Acting for)- not enough time to do
everything(Mitrick, 1984)
 It also means that the principal cannot
monitor the agent perfectly
 he doesnot have expertise or access to
specialized knowledge
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12. These create agency problems of:
 Information and Knowledge asymmetries(
not knowing much about the person and
whet he/she does at a particular time
 Opportunism(pursuing self interest with
guile(Williamson, 1975)
 Collective action problems
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13.  Agency theory dictates that the principal will
try to bridge the information asymmetry by
installing information systems and other
monitoring mechanisms like BODs ( Fama &
Jensen, 1983)
 Agency theory helps the BODs in finding
solutions to a narrower problem of CG
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14.  Graig, 2012
 Views managers as stewards of particular
interest groups and gain higher utility from
collective behaviour than from individualistic
behaviour and self-serving behaviour as
presumed by agency theory(Klein, 2006)
 Stewards will protect and maximize
shareholders’ wealth through
performance(Davis, 1994)
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15.  It argues that insider-dominated Boards
contribute a depth of knowledge, expertise
and commitment to the firm which facilitates
an active strategy role(QingYANG, 2008)
 It stresses the realization of people’s self
worth; managers value that being involved in
the company’s strategic decision-making and
hope gets the Boards’ respect
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16.  Studied 10 Ugandan FBs
 Qualitative research design
To collect Data
 We used in-depth individual interviews
Selection of 10 Family Businesses
 Business for 15 years and above
 Family owns and controls 50%
Interviews were recorded and transcribed,
analysed using content analysis
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17.  Boards in FBs often have few directors with
one or two family members on the board in
addition to founder(Ward & handy, 1988)
 Where there is an outside director on the
board, it is often a person with a close
connection to the CEO, a banker or a friend.
 Founder often exercises power over the
board through
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18.  Boards in FBs are pictured as rubber-stamp
boards that only meet formally, approve
what the owner-manager has already
decided to do (Mace, 1971).
 BODs will appoint independent directors
based on Experience andTrust-
 Knowledge of the business- they are able to
understand the role and contribution of
outside boards in FBs Context
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19.  Do Boards exist in Family Businesses?
 Over 80% of the family firms interviewed
had boards, however only 3 out of the ten
family business had functional Boards
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20.  In one of the FBs the Board mainly focused
on monitoring activities, while the strategic
issues seemed to be more prevalent in two of
the FBs.
 In 2 FBs the Boards were very active in the
areas of strategy, service and control.
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21.  All the 10 Family business boards interviewed
had family members dominating the Boards,
these were children of the founders, and
working in the business.
 only 3 out of 10, had outside directors and
others were non-family members but also
working in the Family business
 In many cases board members are hand
picked by management
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22.  Family business boards are typically
dominated by family directors(Voordeckers
et al, 2007;Westhead et al, 2002).
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23.  8 out of the 10 FBs did not have outside
directors although one of them was
considering the possibility of having one.
 Most Boards were dominated by family
directors (seeVoordeckers et al, 2007)
 The number of family members on the
boards had increased over the generations
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24.  One with independent directors did not make
up majority of the Board
 One FB had an independent director as a
requirement from the Bank
 Those with outside directors
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25.  With regard to family governance, it was
noted that informal meetings increased in
importance from the second generation.This
were held usually at breakfast or Dinner
 Formal meetings took place once or twice a
quarter
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26.  Families are better monitors of managers
than other types of shareholders(Setia-
Atmaja, 2012).
 Owners of FBs are reluctant to appoint
independent directors because they do not
want to lose control andTrust(Amran
&Ahmad, 2012)
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27. FBs face a unique Agency Cost.
 They usually struggle with adverse selection
because of nepotism and sometimes
selection on less-capable agents.
 Because some family members are
compensated quite well, regardless of merit,
and their job tenures are relatively secured,
principals may lack important incentives to
constrain agent behaviour.
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