Why a Board Is One of the Most Powerful Tools to Ensure the Longevity of a Family Business
We have seen more family businesses interested in corporate governance and setting up boards today than we did a decade ago. If you or your family owns such a business, you understand how important the business’s success is to your personal wealth and to future generations. As your family business gets more complex, it becomes necessary to rely on a more professional board to play an active role in important matters, such as setting your company’s strategy and reviewing its management performance.
Developing an independent board is a significant step in the life of a family business, as it becomes the central institution in its governance. The role, structure, and composition of your board of directors will vary depending on the size and complexity of your business and the maturity of your owning family. Additionally, a board can allow for varying levels of input from family members as their circumstances change and provide longevity for senior members, whilst retaining their value on a less than full time basis.
It is likely that over time not all owners will be involved in the management of the business, creating some possible tension between ‘inside’ and ‘outside’ owners that an independent board of directors could help alleviate. Also, while the overlap of management and ownership may reduce the need for oversight, the additional overlap of family relationships in a business context increases the emotional complexity of certain key decisions. The presence of trusted independent board members provides a non-emotionally charged sounding board.
Keys to a successful independent board include:
- Ensuring that all owners understand the role and responsibilities of the board and are ready to incorporate outside thinking into business strategy and oversight.
- Clearly specifying expectations of directors in advance of hiring them.
- Seeking directors who understand family business and have dealt with the major strategic issues your business will face.
- Committing the time and energy required to use the board effectively (prepare materials in advance, including structured agenda, and actively facilitate the meeting to ensure input from all directors).
- Ensuring that owners provide ongoing input to the board on their vision, values and goals for the corporation, and providing opportunities for board and owner interaction.