One of the key topics discussed at the 13th European Corporate Governance Conference in Vilnius, Lithuania, last October was Stewardship. It formed part of the overall conference focus on shareholders engagement and referred to the recent UK Stewardship code (2012), addressed to institutional investors.
Interestingly, the word Stewardship has been used in the family business world for many years: more than 20 years ago Craig Aronoff and John Ward wrote an article on « The critical value of Stewardship » (1992, Nation Business).
The word is often used in family business circles, and increasingly in business literature, but what does it exactly mean? The Merriam-Webster defines stewardship as: « The conducting, supervising, or managing of something; especially: the careful and responsible management of something entrusted to one’s care – stewardship of natural resources » (source :Mirriam Webster). The word’s history can be traced back to ancient times, when
stewards managed estates entrusted to their care.
When it comes to business, the 2012 UK stewardship code states that « Stewardship aims to promote the long-term success of companies in such a way that the ultimate providers of capital also prosper. Effective stewardship benefits companies, investors and the economy as a whole » (The UK Stewardship Code, September 2012) (PDF 318 KB)
Which companies personify the long-term better than family businesses? Sanela Pestalic & Jessica Batts define family business stewardship as the perspective of seeing the ownership as a responsibility to the next generation, to employees, and to the community – rather than simply as a financial investment (Source: Sanela Pestalic & Jessica Batts in familybusinessewiki, 2014)
Family business owners are more prone to have a stewardship attitude and to have a longer-term view – the goal is to pass the business on to the next generation. Stewardship can be lived both at the leadership and at the ownership levels.
At the leadership level, stewards view the family business as an opportunity to create value and benefit for others (e.g., future generations of the family; employees; the community) rather than solely an opportunity to build one’s own personal wealth and power. They are more likely to focus on continuous improvement and more willing to take the risks required for long-term growth (Aronoff & Ward, 1992, mentioned by Sanela Pestalic & Jessica Batts).
At the ownership level, there is a trend to develop “responsible ownership” in family businesses, encouraging owners to understand the business so that they can take informed decisions – and quickly, where required in certain cases. However, we still see many family businesses where owners only know the amount of the yearly dividend and hardly know which investments the business needs to make – and where the leaders are too busy leading the business to organise training or information.
The UK Stewardship code encourages institutional investors to keep abreast of the company’s performance, of developments – both internal and external to the company – that govern the company’s value and risks, and to attend the General Meetings of companies. It also encourages them to see that the company has appropriate leadership and governance. It specifies that it is not “an invitation to manage the affairs of a company”, reminding us of the difference between the roles of owner, board member, and leader.
These recommendations can be usefully adapted to family businesses, where owners do not only have the right to have information and a share of dividends, but also the duty to understand the business and its environment – this will enable them to take the important decisions required for the long-term sake of the business and all its stakeholders.
If you have not yet done so, you can start with simple steps such as: explaining the key business events at the shareholders assembly, organising company visits and meetings with top management and teaching owners to understand the financial statements.
Lastly, each family can benefit from discussions around: what does stewardship actually mean to us?