Guido Corbetta Chair AIdAF-EY of Strategic Management in Family Business

In memory of Alberto Falck

Helsinki, 19th September 2014

Governance for Long-lasting Family Businesses

Ownership stage

Founder

Second generation

Cousin consortium

Entrepreneurial family

Board of Directors

Shareholders’ agreements

Family meetings

Family protocol

Family foundation

Family office

Family council

A dynamic vision of family and corporate governance

Corporate governance activity

Ownership organization (Family holding)

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Corporate Governance as a system

The successful governance of a company is a system of “actors” (and processes):

• Shareholders’ assembly• Board of Directors• Chairman • CEO• Committees of the Board (Executive, Audit,

Human Resources, …)

Legal context and group structure are relevant- 3 -

Models of Boards of Directors

Directors’ competencies

High

Low

Role of the Board within the decision process

Limited Relevant

B.o.D in transformation

Governing B.o.D

Useless B.o.D

Dangerous B.o.D

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Roles of Boards of Directors

The Board of Directors doesn’t have direct managerial tasks, but governing tasks which may be aggregated into

legal role strategic role

In a “governing” Board of Directors it is necessary to develop both roles

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The outside directors

It is difficult (or impossible ?) to organize a “governing” Board of Directors without outside directors who can be:

Affiliated (friends, ex managers, …)

Unaffiliated or independent

Outside members can support the company and the owning family

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The roles of outside directors for the company

to stimulate self-discipline and a sense of responsibility

to promote the introduction of reporting tools more sophisticated and connected to management performance

to monitor potential confllicts of interest

to secure minorities’ interests

to secure other stakeholders’interests

In terms of control:

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to acquire new experiences and competencies

to have stimulating counterparts during the formulation of goals and strategies

to improve the quality of the decision making process through deep-reaching questions

to improve the quality of people evaluation processes

to improve relations among other stakeholders and the business

to improve the reputation of the company

In terms of strategy

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The roles of outside directors for the company

Outside directors can complete the skills

missing from the board (1/2)

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According to directors of family-owned and non-family-owned businesses:

Source: Boris Groysberg and Deborah Bell

Are there skills missing or insufficiently represented on this board?

Is there a formal process of determining what skills are required for the board and, therefore, for new directors?

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Source: Boris Groysberg and Deborah Bell

What are the skills missing from boards?

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Outside directors can complete the skills

missing from the board (2/2)

The roles of third parties for the family

Third parties unaffiliated of the owning family are very useful for family governance because they help: to define the right rules in the relations among the

company and the family to plan in a professional way the succession process to manage some “strategic traps” that may happen

because of the entrepreneur getting older to manage with less emotional bias the tensions

which may arise among family shareholders, managers and non managers

to train successors- 11 -

Zegna case:corporate governance

Board Governance:

Four “independent” Board members out of 8, with age limit rule

Audit Committee and Compensation Committee

Group Governance:

Executive Committee: top management, of which one third is foreign, meets 4 times per year

Zegna Convention: all worldwide executives meet 2 times a year (of which one at our Milan Headquarters) - 12 -

Zegna case:family governance

Entry of the next generation:

Admission rules tied to education, competence and

passion: university degree, foreign languages and

work experience in other companies for at least 3

years

Young Generation Committee: meets twice a year

under the guidance of our Chairman Paolo Zegna and

with the presence of experts in Family Business to

move the fifth generation towards the Group.

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De Agostini case: family governance

(1/2)

The Assembly of the shareholders has approved the “Rules for the IV generation”. According to these rules, members of this generation could have different roles:

Managers: a candidate must reach some significant results in the managerial career outside, before entering in the Group

Part time employees: each branch of the family can candidate two members for part time employment

Suppliers or consultants of the companies of the Group (with some limitations).

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To prepare all the members of the IV generation to their ownership responsibilities, a Committee IV Generation has been established.The Committee is composed by 8 members of the IV generation (4 olders and 4 youngers) and organizes actvities for all the members of the IV generation.

An Implementation Committee is in charge of all the development process of the IV generation. The Committee is composed by the Chairman of the Group, the Vice Chairman in charge of the relationships with the owners, the non family CEO, the head of the Committee IV Generation, three consultants expert in family business and in head hunting. - 15 -

De Agostini case: family governance

(2/2)

Pay attention !

Before asking an outsider to join it is useful to get to know each other

a balanced person

independent in his/her judgments

motivated

morally upright

with experiences in family business

used to working in businesses of

larger size

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