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Changing while keeping the substance: The role of governance
by Professor Josep Tàpies
Two basic functions of any board of directors are to project the business in the long term and ensure its sustainability.
In an environment such as ours now – in which so many external variables condition the future of companies and put their business models to test, such as the COVID-19 pandemic, digital transformation, globalization questioned by supply chain interruptions, the emergence of artificial intelligence (AI), the importance of carbon footprint, the impact of environmental and social factors, and others – boards of directors have to ask themselves questions such as: Will our business model be affected? How should we change? What about our organization? How will we adapt while maintaining the purpose of our company and its system of values?
The boards of directors of resilient companies understand that without change there is no future; that is why they can change and adapt while remaining true to their fundamental values.
Already back in the 1990s, James C. Collins and Jerry I. Porras stated in Built to Last that “a visionary company almost religiously preserves its core ideology.” Moreover, core values constitute a solid foundation much like a rock, and for this reason do not fluctuate with fleeting trends. In some cases, they may remain intact for more than a century, as the examples described in 100 Families That Changed the World: Family Companies and Industrialization.
Family-owned businesses that are long-lived are those that have innovated, but at the same time, known how to keep their conservative spirit intact. In fact, it's precisely this desire for survival that favors and stimulates innovation. It may seem contradictory, but it's not. The adjective conservative does not have to be pejorative, although when talking about companies, especially if they are family firms, it sometimes has this connotation.
These are companies that have a spirit of adapting to change in their genes. And they manage to ensure that employees experience this through the culture of the organization. The culture of an organization is the deepest level of everything that is assumed as essential; it is entwined with the beliefs shared by the members of a company. These operate unconsciously and define, in their basic interpretation, the vision that the company has of itself and its environment. They comprise a set of basic, defined assumptions, which are discovered or developed while learning and confronting problems of external adaptation and internal integration. And they have exerted enough influence to be taught to the new members of the organization as the correct way to perceive, think and feel those problems. The board of directors plays an important role in fostering and maintaining this culture.
The 100 companies that changed the world have one characteristic in common: early on, they knew how to equip themselves with a corporate governance system, separating the ownership from the governance and the management of the company. Some have kept family members running the company, while others have completely externalized the management of the company. This is a critical decision when thinking about corporate governance in family businesses.
Values are the fundamental pillars of a company. They are like the wind: they are not seen, but felt, in the words of José Luís Simões, president of Grupo Simões, featured in the study Values and Communication in the Family Business and published by IESE’s Chair of Family Business in 2016.
It is here, in all of these intangibles, where companies that are resilient stand out from those are based only on a business model with an unknown foundation and, as a result, don’t know where to turn when the winds of change blow.
I conclude by once again paraphrasing Collins and Porras. Values are like a fixed star on the horizon that can serve as a compass over centuries. And it is the board of directors that must safeguard a company’s purpose and values as it seeks to project the company in the long run.
Josep Tàpies
Professor of Strategic Management
IESE Center for Corporate Governance
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