- Foreword
As Michel Lauwers indicated in his article in the newspaper L'Echo on November 29, 2024 ("85% of family SMEs do not make it past the fourth generation") and which is based on a recent study by Deminor NXT, 63% of family SMEs survive for two generations and more than 37% last for three generations. There are very few reliable statistics on the subject, and one of the reasons cited for this erosion of the survival rate is the lack of appropriate governance. It is also pointed out that the accumulation of three roles (those of manager, administrator, and shareholder) in more than 60% of SMEs is an obstacle to professionalization and the contribution of expertise, knowledge, and practices vital to the sustainability and development of the business.
This article, with a somewhat provocative title, aims to share a well-formed conviction and the experience gained from within regarding the essential role of an Executive Committee and good governance within SMEs and family businesses. While the role and attitude of a small business owner or the emblematic figure of a family business may be somewhat challenged, the goal is certainly not to question the critical importance of these key individuals, nor to pass judgment on the real difficulties and resistances they sometimes face in opening up and professionalizing the mode of collaboration and decision-making within their company.
- The Executive Committee and governance, only for large companies?
Multinational corporations or large companies sometimes astonish with the complexity of their organization and the heaviness of their governance. In a somewhat caricatured manner, it is not uncommon to encounter barely readable organizational charts, fragmented decision-making processes, and vague job titles. While these excesses and this heaviness can indeed come to light, the establishment and proper functioning of governance and management and decision-making bodies in large structures are subjects treated with a great deal of attention and rigor because they generate added value in terms of quality, transparency, and relevance of decisions, as well as in anticipating and managing the risks inherent to the life of a company.
In contrast, SMEs and more family-oriented companies often deliberately maintain a simplicity and great pragmatism in their mode of operation. Whether the owner is the original founder, a collaborator from within the company, or an imported talent, he or she alone supervises a large part of the value chain of the business. He or she embodies the product or service, is involved in a very large number of decisions and initiatives, and their position and experience heavily influence the execution and outcome of these. Consequently, the true development of trustworthy, competent women or men who can or should take initiatives and make decisions is sometimes hindered. The "bench depth" (referring to the overall quality of a sports team, including active players and substitutes) is poor, and the potential for the empowerment of teams and the company is potentially affected.
Can a management committee or an executive committee be born, generate added value, and thrive in smaller structures? Does governance necessarily hinder the agility and efficiency of organizations that are smaller, more traditional, or family-owned? Conversely, are large companies the only ones that must and can establish teams and systems that professionalize and regulate decision-making and activity management?
In the following article, we recall some concepts, discuss the supervision and management framework often adopted by default in SMEs or family businesses, and highlight the true added value of the Executive Committee and governance in companies, provided that a few basic principles are well respected.
- The Executive Committee
There is sometimes confusion between the term "Executive Committee" (COMEX, EXCO, General Management) and that of "Management Committee." The Executive Committee generally represents the highest decision-making and operational management body within a company, steering the business in accordance with the overall strategic and financial direction required by the shareholders. It is composed of a CEO (General Director or Chairman and CEO if they also lead the Board of Directors), key function directors (finance, operations/production, human resources, etc.), and potentially heads of the main divisions/business units whose market or product/service activities have a critical mass within the company in question. The Executive Committee is responsible for executing the strategy (defined in a body set up for this purpose - Management Committee or Strategic Committee) validated by the Board of Directors and for the effective management of the company's operations, typically reporting to the Board of Directors through its CEO. It meets at fixed and regular intervals and covers a relatively constant and cross-functional agenda: status of execution of strategic initiatives, synthetic review of operations (key indicators), financial statements (P&L, Balance Sheet, Cash), and generally direct supervision of vital matters concerning the health, safety, and sustainability of human resources and infrastructure. It also officially addresses "escalated" points: subjects and events that fall outside the prerogatives and delegations provided within the departments and their respective director(s)/leader(s) or that require attention and potentially a strong collective reaction and decision to counter a major risk or seize an important opportunity. Finally, the Executive Committee is a body that must literally embody the culture, values, and behaviors expected of the entire organization. Through its high visibility and level of responsibility, it is a crucial catalyst for the respect and proper application of the company's DNA (its Mission, Vision, Values) with exemplarity and conviction.
A Management Committee is made up of a panel that is sometimes broader than the Executive Committee. It generally consists of the CEO, functional directors, but can also include holders of relevant expertise external to the company. It is a decision-making and strategic body more focused on the long-term strategic development of the company, on structural changes (acquisitions, major reorganizations, etc.). It can meet at fixed intervals (notably for the annual strategic plan process), but it will also be convened on an ad-hoc basis if a topic or current event with potentially significant impact on the strategy or structure of the group is identified.
For ease in the following article, but also because the nuance or difference in practice is minimal, unnecessary, or nonexistent in many companies, we will therefore focus on the role and advantages of the Executive Committee, the body at the head of the company's management that generally reports, through its CEO, to the Board of Directors and shareholders, and which is therefore a central body to consider in establishing corporate governance.
- Governance
The meaning of this term is very varied and ... variable. For the sake of simplicity, we will refer to governance as the set of rules, bodies, and systems that govern management, decision-making, and control within an organization in order to ensure transparent, ethical, and effective operation. This includes, but is not limited to, the list, definition, and mandates/responsibilities of the various bodies (board of directors, executive committee, investment committee, CSR committee, audit committee, etc.), the mechanisms for delegation of authority and approval (maximum amounts or types of transactions that can be engaged/approved by hierarchical level or by type of function), the formats and contents of various communication, reporting, and decision-making tools (KPIs, dashboards, activity reports), and potentially other useful standards to delineate proper functioning, collaboration, and adherence to values and principles both within the company and externally.
It should be noted that if there is neither written nor shared governance within an organization, there cannot be any truly effective supervisory and management bodies or rules. In a somewhat caricatured way, establishing a driver's license without providing a traffic code automatically paves the way for infinite behaviors and interpretations of what is prudent, reasonable, and acceptable in terms of driving...
- The "atomic" management of certain SMEs and family businesses
Many SMEs and family businesses are built and structured around an omnipresent and omnipotent leader. The leader has often been the project bearer (the founder), and is sometimes also the exclusive or main owner, or one of the heirs with the goal of continuity and respect for the company's long-term DNA. They often embody the history, brand, and company both internally and in the market, generally possessing a deep knowledge of all operational aspects of their organization and having a powerful and effective informal professional network. If one were to represent or symbolize the way SMEs operate and certain companies that maintain a strong family anchor, especially in the early years of their existence, it could be done using the structural diagram of an atom. The nucleus in a central position represents the leader, while the "electrons" on the periphery identify the collaborators, clients, suppliers... The flow of information, the steps of a large number of transactions (purchases, sales, OPEX or CAPEX expenses, recruitment,...), internal and external interactions, and decision-making or approval processes predominantly transit through the center, through the nucleus. The "electrons" interact little with each other (or refer to the nucleus) and generally remain on the periphery of the decisions and major topics handled by the nucleus. The cohesion and solidity of the atom (the company) is ensured by the strong, even personal, ties that the nucleus forms bilaterally with key electrons, collaborators who often joined the company in its early days, showing a certain courage and demonstrating their loyalty over the years.
In terms of governance, the often strong history and culture in these types of companies, the emblematic and pivotal role played or still played by the CEO (especially if they are the founder and/or the main owner), the expertise, information, and network of which they are sometimes the sole custodian, tacitly define the contours and principles of decision-making and control on a daily basis. It is considered logical and legitimate, both internally and externally (suppliers, clients), for the boss to decide or intervene alone on a vast majority of topics and operations related to the company, especially if it is their own business.
This "atomic" structure and this "tacit" governance can function perfectly as long as the SME, by choice or circumstance, does not exceed a critical size. Everyone finds their place, their reference points, and automations quite simply or instinctively. In a somewhat more insidious way, employees are happy and reassured to have decisions completely centralized and concentrated in one single person; the boss plays the role of a lightning rod that spares them from potential bad decisions, thus avoiding grievances and potential stress.
But what happens when the SME or family business becomes more complex, grows, develops in terms of the number of employees, in terms of legal or operational structure, in the number and frequency of transactions? What occurs when the CEO is no longer necessarily the original founder with all the initial knowledge and skills and their historical network? How do you manage and steer the company when the market or technology in which the company operates changes rapidly or profoundly and requires the regular addition of new expertise that cannot all be covered by the owner? What should be done when the number of requests and expectations from stakeholders (clients, shareholders, banks, regulatory or certification bodies) and the regulatory framework gradually, sometimes rapidly, increases, and ends up, by habit or default, on the desk or in the inbox of the CEO?
The total and unilateral control over critical issues becomes impossible. Despite the great availability and often exceptional level of involvement of the boss, centralizing all or the vast majority of requests, reflections, and decisions in that same person is no longer realistic. "Atomic" management becomes potentially counterproductive, even dangerous for the very future of the company. Tacit governance and the usual practices of supervision and management become outdated and risky for the sustainable development of the business.
- The Risks and Opportunities of the Executive Committee
The biggest reservations, fears, and even prejudices expressed regarding a true Executive Committee and governance within smaller organizations can be summarized by a few keywords: slowness/bulkiness, disconnection from the field, politics, cost, and disempowerment. These risks, if they exist and are often mentioned by "atomic" leaders, obscure a completely different reality and skew the added value and proper functioning of a more collegial general management.
Slowness and heaviness? Involving more people in a decision-making process or in the execution of a major initiative can indeed take more time. The saying "You can’t rely on anyone better than yourself" or "I’ve dealt with this issue in the past and know how to handle it" are then raised! While it is undeniable that informing, or even consulting, employees consumes time and energy, the real question to consider in light of this additional effort is: what will we ultimately gain in terms of coordination, support, and involvement within the company if we take the time to broaden the scope of discussion and consultation to a larger circle of professional collaborators? How many times have we experienced a major decision or initiative, made individually and without consultation by a boss or a manager, generally aimed at acting quickly and decisively, but which ended in failure, misunderstanding, or even resistance from employees who are crucial to its success? What is more time-consuming and energy-draining? Sharing and involving or decreeing and justifying? Using a body like the Executive Committee allows for qualitative and objective information on a subject, and then to cascade, align, and amplify the management's actions within the various teams and departments. This is the very principle of building a coalition: the broader and deeper it is, the more powerful it becomes.
What about decisions or actions that need to be taken quickly when the boss is unavailable? Should the company, clients, or partners always be dependent on the availability of the CEO? Isn't that sometimes precisely where the hindrance or obstacle to a quick decision or initiative lies?
Attention, like any collective and collaborative body, the Executive Committee must indeed operate effectively. This is achieved by clearly defining its responsibilities, frequency, duration, standard agenda, and modus operandi from the outset. Each occurrence of an Executive Committee is prepared and must systematically result in a limited and documented number of deliverables: (1) critical and vital information, even confidential and essential for a proper understanding of an important situation, (2) major decisions of a strategic or operational nature, (3) major actions to be executed and coordinated among the services and teams of the company. As soon as the CEO and each member of the Executive Committee adhere to this "service contract," the volume and quality of discussions, decisions, and actions can potentially be far superior to those managed by a single person.
Beyond the Executive Committee itself and more broadly, governance cannot be translated into an inflation of procedures and management and control bodies. If the culture or values of "simple and effective" are at the very heart of the company, governance will reflect that. For example, within smaller structures, an Executive Committee can also take on the role of an investment approval body (investment committee) or that of developing and updating the strategy (strategic committee) as long as it is necessary.
Another example of the necessity but also of the fluidity that governance can have is the control of critical transactions. If we take the common example of price management in a small or medium-sized enterprise, a flow of control and approval can easily be automated with most current computer systems and can be limited to a minimum number of steps or participants. These critical transactions are no longer exclusively controlled by a single boss who can, and it's human, also make mistakes. The very principle of controlling transactions on prices and discounts also allows the organization to develop data and statistics that are very useful for a true pricing strategy (price sensitivity analysis, profitability analysis by product range or customer segments, competitor price analysis...). A manager in a small or medium-sized enterprise, while retaining some of their prerogatives as the "Ultimate Sales Director," allows their company and the sales team to develop a real competence in price positioning, negotiation, and an awareness of protecting or improving profit margins.
Disconnection from the field? Even in a smaller organization where it is expected that employees maintain full involvement and attention to operations, establishing an Executive Committee does not disconnect its members from the operations. Preparing for and participating in a general management meeting requires its members to regularly engage with their respective teams to gather facts, figures, recommendations, or expertise. Even if a member of an Executive Committee has autonomous decision-making power and recognized expertise, they must consult their team, valuing the knowledge and skills of their direct collaborators. They will only be considered legitimate, and will remain so, if they are in direct and regular contact with the operational reality of their teams, if they are close to it and understand it...
In the opposite direction, to effectively deploy and execute decisions made at the highest level of the company, members of the Executive Committee have no choice but to personally engage with their collaborators. Taking the time to close the loop of a decision-making process by explaining in simple terms the why, who, what, and how can only facilitate and accelerate the execution or compliance of a management decision within the company. Gone are the days of "just do it" or "we need to" ("Yaka-Faucon"), which are probably the most demotivating and counterproductive injunctions for a team. Even if a decision or initiative taken by management rarely achieves unanimous support (or some must even be made in complete confidentiality!), the mere fact that it has been built and implemented through a back-and-forth process between team leaders and operations significantly increases its speed and execution power!
Politics? An Executive Committee is sometimes perceived as a lobbying body, a game of influence, and a power dynamic. Or even as a black box in which choices are made with opacity. However, how could a general management team composed of several official, legitimate, and competent members be more political or susceptible to influence than a "solo" leader? Is there not much more opacity and risk of influence in what is referred to in English as "a shadow organization," an unofficial organization where the leader's privileged relationships with certain members of their company—often historical or based on certain affinities—heavily and secretly weigh on the choices and decisions they make? Let us remember that while the General Director can and should exceptionally have a space for unilateral decision-making and arbitration, they primarily benefit, through the other directors, from more comprehensive, nuanced information sources and complementary expertise to understand a situation or event and arrive at an informed decision.
What can be said then about the precisely apolitical nature of governance in general? The mere act of describing and documenting the operational mode and the management and decision-making rules of the company allows for safeguards to be put in place, ensuring greater coherence and transparency in the actions taken by the various team leaders, different leaders, or directors. Returning to the example of driving, the existence and severity of an offense are not left solely to the discretion of a police officer or a judge; they are based on a traffic code that provides a clear framework for both the driver and those who ensure its compliance.
Cost? If it is legitimate to recognize the level of responsibility, expertise, performance, and/or seniority through compensation, does the cost structure of a company automatically become much heavier if it has a true Executive Committee? Does the establishment of hierarchical levels and categories of functions, particularly through the implementation of a management team or leadership/manager positions, not precisely allow a small or medium-sized enterprise (SME) to structure a credible and objective compensation policy more broadly? How many SMEs are not faced, after a few years of existence, with total inconsistencies in terms of salary policy? The result of individual discussions, sometimes undocumented and more opaque, between a boss and their employees within an "atomic" company inevitably leads to inequalities in treatment, inconsistencies that will all, sooner or later, result in costly adjustments made in haste or in demotivations or resignations that are equally costly from employees who are critical to the life of the company.
The establishment of a general management does not automatically imply the addition of Full-Time Equivalents (FTEs). Rather, it grants a series of competent individuals, recognized by their peers, a scope of responsibilities and duties. It indeed involves the creation of a new category of positions with a specific compensation scheme that must be attractive, but general management positions inherently involve a higher level of demands and expectations for those who aspire to them! Like any good investment, the owner of a small or medium-sized enterprise (SME) and the Board of Directors can and must, through the establishment of high-responsibility positions, expect a high added value and require an even greater level of commitment, courage, and exemplary behavior.
Disempowerment? One of the latest grievances against an Executive Committee, often raised, is that it channels actions and decisions that in the past were made at a more operational level. The Executive Committee would become, in a way, a "vacuum" for a multitude of topics to address, a gadget that superficially juggles too many issues, with a risk of congestion and a "resignation or de-responsibilization" of the more operational levels within the organization.
Most often, this argument is used by bosses who could sometimes be described as "control freaks" and who themselves, consciously or unconsciously, strip a large part of the responsibilities from their direct collaborators, whether they are organized within a management structure or not. Not knowing how to detach themselves from a very operational management style (the micro-management syndrome) due to a lack of trust, a very commendable desire to maintain a strong involvement and connection with the business, or a visceral attachment to their company, do these omnipotent and omnipresent bosses not themselves foster a disempowering dynamic? As mentioned earlier, hyper-centralization and concentration of approval and decision-making powers have the very perverse effect of disempowering collaborators more broadly, erasing any spirit of entrepreneurship, initiative, or innovation, which is vital in the journey of a company.
If governance clearly defines the critical thresholds (in terms of financial or risk levels) from which different hierarchical levels and functions must exercise their prerogatives, it is entirely possible to avoid the congestion of topics in the Executive Committee and to maintain the appropriate level of consultation and involvement at each level of the organization.
Professionalization and sustainability. In summary, when a company is developing, growing, or needs to transform for endogenous or exogenous reasons, creating and operating an Executive Committee allows a General Director, a company founder, and/or its shareholders to truly enter a dynamic of professionalization, skill acquisition, and team mobilization. Establishing a proper understanding of critical issues among a broader group of leaders multiplies the quality and quantity of relevant information for decision-making and can significantly increase the speed and effectiveness of the measures to be taken. Each member of the Executive Committee ensures they leverage the expertise of their respective direct collaborators and personally works to coordinate and engage in the proper execution of the decisions made and the choices posed. The trust contract established between a Board of Directors and its Executive Committee, between the CEO and their General Management partners sends a strong message to the entire organization, to the employees and partners of the company: we are investing in profiles and in a decision-making body that must relay problems and opportunities, that must be a source of proposals and solutions, and finally, that is mandated for the proper organization and follow-up of measures to be taken from critical thresholds. The corollary of these critical thresholds is precisely that issues, transactions, or decisions that do not reach them must be handled by individuals or teams who have the autonomy and skills necessary to do so (in English, we refer to this as "empowerment" and "ownership").
Surrounding an iconic and "atomic" leader with competent and motivated directors does not deny the history, culture, or DNA of a company, nor the role that he or she still has to play in it. It also does not sever the strong ties that he or she has built with collaborators, partners, and long-time clients, nor does it indicate a lack of interest or disinvestment in the company, nor does it deprive him or her of direct interactions with vital stakeholders. The important step of establishing an Executive Committee and a simple and clear governance structure allows for the development and sustainability of a company by relying on the strength and talents of a collective that is fully committed to the ambitions, vision, and values of the company and its shareholders, which will operate with a high level of demand, a lot of transparency, skills, exemplary behavior, and leadership.
The Executive Committee is one of the key bodies to be established and operated as part of implementing true corporate governance. Its effectiveness and speed or agility will heavily depend on the simplicity and clarity of the broader governance framework set within the company. The added value of the Executive Committee will, of course, also depend on the quality of its members and the level of trust and autonomy granted to it by the shareholders and/or the current CEO! As in any human relationship or entrepreneurial venture, you reap what you sow....
In a future article, concrete examples of tools and attitudes to be adopted by an Executive Committee to best fulfill its role will be discussed.