Discuss about the advantages and disadvantages of family-owned business and as for the second part: the role

of non-executive directors

Governing Business Activity (FE1023) Prepared for: Mr. Behrooz Prepared by: U1153049 School of Business and Management (SOBM) Linton University College 7 December 2011

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Abstract

This report is a discussion on the advantages and disadvantages of family business. For the second part is to discuss the role of non-executive directors in the company.

The main discussion is to state the definition of family business and the advantages and disadvantages of family business. Then define the non-executive directors including the appointment and role of the board of the company.

It can be concluded that the family business also generates income economy. In addition to the family business also has a unique compared to other business. While the topic is the role of non-executive directors is to know what to do for a contribution to the board of directors and the company.

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CONTENTS PAGE

Section..Page Number

Chapter 1: The Family Owned Business.4 1.1: Introduction 1.2: Advantages and disadvantages of family owned business 1.3: Conclusion Chapter 2: The Role of Non-Executive Directors..7 2.1: Introduction 2.2: Definition of Non-Executive Directors 2.2.1: Appointment of Non-Executive Directors 2.2.2: Executive and non-executive directors 2.3: The Role of Non-Executive Directors 2.4: Conclusion

APPENDICES.10 REFERENCES12

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Chapter 1: The family business

1.1: Introduction

In general, family businesses can be said to be unique compared to other business as there are differences resolved problems encountered in the entry. This is because there is mixing between the business and family business management matters. In addition, family businesses can be found in various economic sectors to the business world to manage the disunity between business known as 'mom and pop'.

According to Meredith (1988) define family business as a business that has a majority position held by members of the family, and usually the founder and partner holds a majority equity business and his children and his kin in key positions in the company's management level.

1.2: Advantages and disadvantages of family owned business

1.2.1: Advantages of Family owned business

The family business is unique in that creates a sense of belonging, such as commitment, knowledge, flexibility of time, work and money, thinking ahead, a culture that is stable, fast decision making, dignity and reliability. Also, be prepared to sacrifice the trouble and do not take profits. Having a long-term perspective and less bureaucratic and more flexible. In terms of financial resources is easy to make these loans because all family members are a major source of business financing and has a track record. In terms of human resources, membership in a family with an interest and commitment to doing business can be equally involved. The spirit of this family indirectly facilitates the obtaining of a committed workforce in the family.

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For the source is a family business has its own power source so as to create a personal nature of intimate relationships with their customers. This is because the family culture into the company culture. Apart from that entrepreneurs have the freedom, independence and full control of the business. Free to act alone if the advantage of such action thinking the company is profitable. Thus can improve family relationships through the sharing and communication in the family business closer relations among family members.

1.2.2: Disadvantages of family owned business

The family business also has disadvantages in terms of skills and equipment. If there are heirs of a new family in dire need of reform that have been left out skills. Usually owned by their skills obsolete and outdated and not compatible with the current era. Also, had to deal with the transition, this is the problems that befell the family business. This is because the founders wanted to maintain the old traditions and new substitutes the need to make changes. Thus the conflict in the family that ran the business. Family businesses face limited choices in securing sources of external capital resources, particularly capital. This usually occurs when the long-term need additional capital to finance large projects such as opening new branches. Next was the financial stress occurs when there are family members taking advantage of a company's financial. Then have poor reward system would cause injustice or commensurate with the work done. Replacement of management that can be divisive relationships within the family. If no appropriate leadership and the uncertainty in determining that is really qualified to take over the business would cause a conflict of roles. In terms of personality conflicts and problems will cause emotional issues that interfere with the effectiveness and management of family businesses. May also be an argument or disagreement with the original management system and existing employees .If the business is neglected, family members had invested more than the purchase price of the company to ensure the success of the company. In terms of leadership are a number of brothers and sisters have equal shares in the company so no one is allowed to have a more dominant power. If there is a trend in the

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distribution of power unwillingness to allow a person responsible for the development of the company.

Next is a weakness that tends to favour the family values a manager though not efficient or potentially will make it difficult to attract professional management. Because the structure is unclear and confusing and unclear division of work.

1.3: Conclusion

In conclusion, the family business is like other businesses set a goal to maximize profitability and achieve real success. The difference between a family owned businesses with other businesses is in terms of business ownership and management held by a family at a time and passed from one generation to another generation.

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Chapter 2: The non-executive director

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2.1: Introduction

In Malaysia, economic growth depends on a whole to the private sector for sustainable growth in trade and business activities and operations of the privatization of postal services, telecommunications, power generation and national sewerage company reports and accounts reveal the profound research. Because the business environment and laws continue to become more complex and it set a more reasonable claim among the directors of the company. It is important that there is a level of efficiency behaviour of corporate, behaviour with a high degree of professionalism and reliability to support good corporate integrity. There is a principle of the directors is related to transparency, integrity, accountability and corporate social responsibility. The aim is to raise standards of corporate governance and corporate behaviour by setting standards of ethical conduct for directors based on the beliefs and values that can be received, held or supported by someone. To uphold the spirit of social responsibility and accountability in line with legislation, regulations and guidelines governing a company.

2.2: Definition of Non-Executive Directors

According to Section 4 of the Companies Act defines a director as an executive officer of the company at the time of any such name, whether he was a director. Companies Act also states that directors, including whether the person who occupies the position of corporate director by whatever name called and any person any directions or orders are common directors of the corporation to act and an alternate or change in directors. The Company was required to have at least two Directors and there is no statutory limit on the maximum number but I was determined by the Articles of the Company. Typically a maximum number of Directors in the Articles of the Company is 50. Companies Act 1965 describes only two qualifications required to enable someone be a Director of the Company it must be a man and must be of full age and ability.

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2.2.1: Appointment of Non-Executive Directors

Power of Appointment is a method that tied in M & A Company. The law does not limit the manner or the prohibition of what is written in the M & A with the director to appoint someone. At this appointment power usually found in the general meeting of Shareholders. However, a provision may be made to enable the Board of Directors appoint an outsider or legally. There are three ways appointment is through M & A. Once incorporated, and included the names of Directors in the Company's Articles or Memorandum. The second is through the appointment of the Board of Directors and the third resolution is made by the Shareholders of the Board with an invitation from the Board of Directors.

2.2.2: Executive and Non Executive Directors:

An executive director is usually appointed from among the directors and salaried position with the company. Some companies hire executive from the top management group as a director, in addition to assuming the position of executive director. Non-executive directors are usually not involved with the daily business of the company, but are responsible, together with other directors to formulate and implement policies. Non-executive directors have the right and the same liability as other directors despite not being paid and are not involved in the daily affairs of the company.

2.3: The Role of Non-Executive Directors

Non-executive directors play a role in the assessment and have the nature to know. They also should ask questions by intelligent, constructive debate, challenging the hard and dispassionate decisions. And they should listen sensitively the opinions of others, both inside and outside the board. Non-executive directors should have a clear understanding of goals and objectives, capabilities and capacity of the company.

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In addition, a non-executive directors need to devote time and effort to attend meetings and to know what is required of the board and each of its directors, and to discharge those functions. Also need to ensure at all times that the company is properly managed and controlled effectively.

Implement the various functions and responsibilities as stipulated in the guidelines and the instructions issued by the authority regulatory from time to time. And advised of the company's compliance with relevant laws and contractual requirements.

A non-executive director should have insisted that what informed of all matters that are important to effective corporate management. Should limit his directorship of a major company in order to devote time and effectiveness of each director to be his own judge of his abilities and how best to manage time effectively in the company as a director.

In addition, non-executive directors also need access to such advice and a service of the company secretary is responsible to the board to ensure that the procedures, rules and regulations are complied with.

A non-executive director should perform his duties at all times for the benefit and success of the company. And to disclose forthwith all contractual interests, either directly or indirectly with the company.

2.4: Conclusion

In conclusion, non-executive directors also have a role in the company and have the power in the business management. Also contribute to the board of the company to
ensure that all decisions or activities are on time and ensure efficient use of natural resources, and improve the quality of life by promoting of corporate social responsibility

Words: 1590

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Appendices 1: picture of family owned business

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Appendices 2: Picture of non-executive directors

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REFERENCES:

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Webpage:

Kod Etika Pengarah Syarikat (2008) Available at: http://www.ssm.com.my/perkhidmatan_kod.php (Accessed date : 28 November 2011)

Family Business -From Wikipedia, free encyclopedia (2011) Available at: http://en.wikipedia.org/wiki/Family_business ( Accessed : 29 November 2011)

Advantages of family businesses. Available at: http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1073792650&type=RESOURCES (Accessed: 2 December 2011)

Bab 9 Perniagaan keluarga (2008) Available at : http://www.scribd.com/doc/4381196/BAB9-P1-KELUARGA ( Accessed: 2 December 2011)

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