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Will New Securities Laws Affect Your Family Business?

“If a company doesn’t need the peculiar advantages afforded by being public, such as access to the capital markets, companies may think twice before going public,” said Michael Rosenzweig, corporate governance expert at the Atlanta law firm McKenna, Long & Aldridge. He was discussing unintended consequences of reforms recently and hurriedly inacted by Congress, the Securities and Exchange Commission and the New York Stock Exchange. “Or,” he added, “companies could go private.” We’re in favor of thinking many more times than twice before a family business goes public and we are unconcerned about public companies returning to private ownership. However, Rosenzeig’s next prediction concerns us: private companies eventually will have to adopt reforms as well. “It would not be surprising for lenders and others to make similar kinds of demands on the directors and officers of private companies,” Rosenzweig suggests. In the rush to provide political responses to the recently revealed rash of corporate malfeasance, we are concerned about heavy-handed overreaction. We believe:

  • In general, families bring strong values and stewardship to the businesses they own and control---just what we need in these troubled times;
  • That excellent corporate governance and accountability are essential for long-term family business success and are the fundamental responsibility of ownership,---government should be careful not to make that job more difficult with unnecessary legal burdens on boards of directors;
  • That governmental regulators should be careful not to stifle the responsible voice of owners in the boardroom of family-controlled public companies. Unlike the Rigas family and Adelphia Communications, members of the Ford family, the Ochs-Sulzburger family (New York Times Co.), the Marriott family and others importantly and well represent their families’ values on their boards and board committees.

In our haste to drive out conflict of interest, let us be careful to remember that the private enterprise system rests on the notion that private owners of businesses will act in their own self-interest to assure that their assets will be well and appropriately used. “Ownership interest” is not a “conflict of interest” unless owners are set on abuse of other legitimate constituents. Plenty of laws already exist to deal with such cases. Legalistic and structural approaches to corporate governance are unlikely to solve the problem and may well make things worse in the long run. Indeed, what we need is to remember that it is the long run that is important---not the shortsighted greed that leads to breaking rules and logic in the effort to get rich quick. We must also remember, that most family business owners give little thought to leading such a shortsighted life.

 

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