The board should be the leader of any family business, it is the right direction to lead the business. If you want to have a business that is strong and has a positive impact on all stakeholders (eg employees, customers, suppliers and the community), you need to ensure that your board is intact and functioning well. This article presents some questions to consider when creating best practices for your own board, such as who should be on the board, whether you need an independent director, and how often the board should meet. When running your own family business in these stressful times, it’s important to think about your board’s purpose and practices. Because ultimately, the ultimate fate of your business (eg, sale, merger or dissolution) is decided by the owners. It is not management.
Running a family business is like a ship. Indeed, the word self-governance comes from the Greek word for “to lead or lead.” Any family that owns a family business must consider where the family business is headed. It depends on who is running the business and in what direction. This is even more compelling as we face the rocky waters of the pandemic, rising inflation and geopolitical uncertainty. If you want to have a business that is strong and has a positive impact on all stakeholders (eg employees, customers, suppliers and the community), you need to ensure that your board is intact and functioning well. The board determines the direction of the company as a collective, the way a captain steers the ship.
As you grow your own family business in these challenging times, here are some questions to consider and tips to help you develop best practices for your board.
do you have a board
Unfortunately, when asked if their family business has a board, many owners say “no.” The response is to indicate that no board exists legally or that a board exists but is not functioning. Either way, “no” is not the best answer. In fact, most companies have a board created at the beginning in the governing documents. If you review your articles of incorporation or bylaws, you may be surprised to learn that a board exists. Take the time to find out if that is the case and, if so, see who is listed as a board member. Instead, if a board is created but dormant, you should ask why that is. Often, family business owners hand over control to the founder or other senior family members who may or may not be on the board. This creates unnecessary loopholes in corporate governance, causing strategic problems today, if not in the future.
What is the purpose of the board?
Although there are different formats for boards, depending on where the business is created and/or operated, all boards serve the purpose of monitoring, directing and representing the interests of the owners. By definition, the board should operate at a strategic level and should not be involved in day-to-day management. A clear separation between the big picture questions that the board must consider and the practical, tactical tasks of management is important. In a family business, the board must ensure that business operations are aligned with the family’s values and goals. This is because, ultimately, the ultimate fate of a business (eg, sale, merger, or dissolution) is determined by its owners. It is not management.
Who should be on the family business board?
Many family business boards are made up of only family members. Although this may provide some comfort to family members that their interests are represented, especially when there are different groups or branches of family members, it is hardly recommended. In fact, they may end up harming their interests – the opposite of what they want to achieve. This is especially true as industries are changing at a rapid pace and disruption is the name of the game for many business models. Board members must have a combination of knowledge, skills and experience ranging from finance and law to industry trends and operational challenges. Issues such as audit, compliance and compensation cannot often be ignored in favor of the family dynamic that drives the selection of board members. At the same time, a family business board should have one or more members – family or non-family members – who understand and meet the values and goals of the family owners.
How should a family business board work?
Some householders have a board that meets daily or once a week. In these cases, the difference between management and administration is being ignored. Just as the captain of a ship cannot rethink his direction every minute (it is better to set the direction without making many adjustments and go for it), the board needs an appropriate place and time to focus on key strategic priorities. A board that meets too often inadvertently takes up valuable management time and risks micromanaging issues that are not the board’s responsibility. Quarterly meetings are usually regular, although more frequent meetings may be desirable in startups or during times of crisis (such as a pandemic). The board chair should lead the meeting by incorporating structured time for key presentations and decisions, ensuring that all voices are heard. The best board chairs understand how to use the time between meetings to get feedback on agendas, pass on difficult questions and issues, and identify topics that are derailing not only the meeting, but even the overall direction of the board.
What is the role of an independent director?
While the term “independent director” may have a different regulatory meaning depending on the company, in the family business context it is often used to refer to a non-family director. The selection and inclusion of independent directors is still a “work in progress” for many family businesses. Some family owners choose a close friend or confidant, which makes the director trustworthy, but often this is not better than appointing a family member who does not have the proper board qualifications. In fact, it’s a good idea to create job descriptions that focus on the board’s goals and needs before considering potential candidates for the board. Additionally, if an independent director joins the board, it is important to create a system that respects their voice and input. The fate of the business and its stakeholders is in the hands of the board; Independent directors should not be elected for optical rather than productive purposes.
Why is this important?
Most of the world’s businesses are family owned. They play an important role in the local and global economy, the size of which is exceeded only by governmental organizations. The board is at the head of the business, and the board is the direction of the business. In addition, the nature of business and the duration of business are changing rapidly. In the future, businesses will need to be more modest and open to fundamental changes in nature. The board must be willing and able to consider when, if, and how to change industries or prepare for the sale of the business. After all, an invincible business may not be the ultimate goal. Family businesses are increasingly faced with demands that go beyond management expertise, but rather from management structures and processes that come with a higher calling – a strong family, economy and society.
