Even families with well-established professional boards that include capable independent directors, good board processes and value-added meetings will run into challenges around the role of the family with the board of directors. Hereunder a few examples of challenges family businesses may face.
Ill-prepared family directors and overlapping roles
Most family businesses start with an informal board that may be comprised of all family owners and perhaps a few key non-family executives. While this forum provides a way to update owners on key matters impacting the company, it is rarely the right group of stakeholders to bring the depth of insight, oversight and objectivity that is most valuable from a more formalized board of directors. Often, when leaders recognize that their board would benefit from the perspective of independent outside directors, these individuals are added with little planning done around the role for and preparation of family directors as the board’s role and mandate evolves.
As a result, you may end up with family directors who are not clear on their role and how they are expected to contribute. In the case of family directors who also work in the business – it can be challenging to shift perspective from their operating role to that of oversight of management. In fact, this can create awkward situations when you have a younger family member, who sits on the board by virtue of their ownership, engaged in oversight discussions about a senior leader in the business who is “several levels above their pay grade.”
Family owners who are not working in the business also need training so that they can contribute as full members of the board. Too often family directors do not feel like they have much to contribute to the conversation at the board level, therefore they rarely engage and eventually are seen more like observers than ‘real’ board members.
The most important way to address this challenge is to make sure everyone: family, management and independent directors, are clear and aligned on the role and importance of family directors at the board. The owners need to articulate why they want family directors and how those individuals are expected to add value to the board.
Inadequately developed qualification and selection process for family directors
It is common that family directors are initially either all the owners, all the owners who work in the business, or a branch representative from all the ownership branches. Not everybody’s best contribution as an owner is to serve on the board, owners need to be honest with themselves about where they can best add value.
One important responsibility of the ownership group is to define the governance model that will best help them meet their goals for their business. This includes determining the issues that will come before the board and topics where the board will have the final say.
Some families use narrow criteria and qualifications for family directors, choosing to err on the side of competence and selectivity so that family directors are as business savvy and experienced as possible.
Poor planning on board observation
One tool that owners use in developing board talent among their family members is to give them the opportunity to attend board meetings as observers.
Bear in mind as you consider setting the right boundaries that the primary goal of board observation should be learning. To that end, thought needs to be given as to a model that will advance the learning benefits to observers, while minimizing the disruption to the board.
Develop guidelines on a minimum age or experience for participation, expected norms on confidentiality, and appropriate conduct in the board room
There is no single correct solution for any of these challenges. The right model should be driven by the needs and goals of your ownership group and the objective needs and opportunities in front of your business. It is also worth remembering that evolving your board, as opposed to blowing it up and starting over again, can be a viable.
( All Statistical information and factual information presented in this blog has been obtained from an extract of an article from the Family Business Consulting Group based in Chicago)
At the Family Business Office we can offer you assistance in dealing with family business issues through incentives supporting advisory and mediation services. Contact us today on [email protected] or visit our website at https://www.familybusiness.org.mt/ for further information.