Throughout my career I have animated quite a few courses on learning how to use and interpret financial information for non-specialists in family owned businesses.
I fully supported the objective of the legislator when the concept of audit committees was introduced in the context of the big corporate law reform of 2002. The idea was to prevent or avoid big corporate financial scandals - and we have seen many around that time - from happening again by having better educated and more financially literate independent family Directors.
While it was nice on paper, implementation was another story. There was no clear guidance available about how this “strengthened” financial knowledge had to be achieved, and so it was left open to the free market to seize this new opportunity.
In view of this knowledge gap in the market, the Institute for Family Businesses stepped forward as one of the “first movers” in this area and developed a balanced, holistic course to especially help family Directors better prepare themselves for this challenging domain of finance, accounting and reporting matters. What we noticed is that in companies that adopt formal audit committees, existing Directors are being asked to preside or take part in these committees. In the short run, given the difficulty in finding suitable Directors with experience in financial matters, this scenario is unavoidable. In the long run, however, this is certainly not the ideal situation and permanent, effective solutions must be found.
And with more and more focus on sustainable finance, I strongly recommend that family businesses review the composition of their Boards and evaluate whether there is sufficient experience and knowledge in the area of financial reporting, accounting and internal controls.
After all, it is explicitly stated in the new Belgian Company Code that it is the primary responsibility of the Board of Directors to install, maintain and supervise a system of internal controls and administrative procedures that is adapted to the size and complexity of the company and to ascertain that the financial figures reflect at all times a true and fair view of the company’s financial position. This is no doubt a key responsibility of the Board as a whole and it is therefore extremely important that the Board ensures that the required competences and skills for meeting these objectives are met.
The field of finance is becoming increasingly important in today’s complex and global world and family businesses must act accordingly!