Family enterprises require transparency, analysts say

Good implementation of corporate governance and financial transparency will greatly reduce mistrust in family-run businesses, which concentrate management and ownership, analysts said yesterday.

"It is important to separate family judgment and business judgment," Ko Chen-en (柯承恩), chairman of the Corporate Governance Association an accounting professor at National Taiwan University, said at the second Taipei Corporate Governance Forum, which was held in Taipei yesterday.

With their unique concentration of authority, family-run businesses have the advantage of a swifter decision-making process, but the mixture of family and corporate interests may also confuse the market and jeopardize long-term development, Ko said.

"Without people to challenge [decision-making] authority," risk to a company may grow, Ko said, urging family-fun businesses to open up executive positions to management professionals while hiring outside directors to provide balance.

Despite the importance of corporate governance to safeguard investors' rights when family-run businesses become publicly-traded companies, Ko said that dialogue is needed between the government and the business community.

Although Taiwanese family businesses generally outperform their counterparts in other Asian countries in CLSA Taiwan's (里昂證券) corporate governance scoring system, Peter Sutton, head of research at CLSA Taiwan, said that concern still exists over family businesses' issuance of securities or convertible bonds, payment to employees and share trading.

He said that investors are demanding a higher level of transparency and prudence in Taiwanese family businesses, which have done the best job in Asia of maintaining operational transparency, but fared poorly in financial transparency.

Further examining the poor enforcement of corporate governance in Asian family-run businesses, Jang Hasung, director of the Asian Institute of Corporate Governance in Korea, said that there is a lack of an independent mechanism to regulate the controlling members of publicly-traded family businesses.

Jang said that problems tend to arise when owners of Korean conglomerates which started as family businesses are able to easily extend their control over subsidiaries in which they have not invested any capital.

Attending yesterday's forum as guest speakers, both Kong Jaw-sheng (龔照勝), chairman of the Financial Supervisory Commission, and Hu Sheng-cheng (胡勝正), chairman of the Council for Economic Planning and Development, vowed to accelerate the facilitation of the nation's regulatory infrastructure to implement corporate governance in family-run enterprises.