The Value of Diversity in Governing Family Enterprises

This week the Family Business Office looks at a different take on governing the family business.

Typically, the low hanging fruit in terms of creating the most harmonious decision-making group is simply to seek out like-minded individuals. And why not? When you are sitting around the table with people who think like you do, idea generation is easy, discussions are not typically drawn-out, and decisions get made. It is efficient. That said, is it optimal? Does it represent the diverse opinions you witness across the large family? Will your decisions reflect multiple opinions and preferences? Will you be able to defend your decisions?

Strength in Diversity

Any important decision made by a governing body must be vetted based on input from a representative group that asks the right questions, investigates the assumptions made in data gathering, and embraces the challenges associated with distinct viewpoints.

Diversity builds strength and increases effectiveness within governing bodies that are composed of either all family members or some family members (corporate boards). Hopefully something here will help you to consider ways in which the composition of those decision-making groups will sustain and strengthen stewardship among your family, key non-family management, suppliers, and financial partners.

In the last few years, a number of social movements have brought concerns of diversity to the forefront of business activities. Corporations like Pepsi, for example, announced huge investments into their goals of achieving gender parity in their workforce, and racial diversity in both their workforce and their supply chain as a response to the social activism in 2020.

Expanding the Meaning of Diversity

It is helpful to clarify what diversity entails, and to consider the recent data regarding diversity when giving suggestions for how diversity can improve the performance of family business governance systems. We define diversity more broadly than gender or racial lines: while a diverse board should include female members (countries such as Norway, Spain, France, and Iceland all require that women comprise 40% of the board), the concept of diversity should be expanded to include racial, sexual, educational, and generational diversity.

Valuing Diversity of Thought

Directors on a board can bring not just a diversity of opinions and perspectives, but a diversity of behavior—a willingness to openly challenge management and other directors, which was missing from the boardroom. By having more open debate, it creates an environment where others see it as good and healthy to have frank discussions regarding important decisions. When members of the board begin challenging each other—and listening to each other’s viewpoints—it leads to positive outcomes.

 

 

Embracing Family Diversity

It is recommended that boards recruit racially, ethnically, and gender diverse directors who can bring new professional backgrounds, skills, and experiences in areas relevant to the company’s strategic and operating needs, and who can introduce new views, perspectives, and approaches to problem-solving. In a family-owned business, this definition needs to include a multigenerational, and multi-branch board that can represent the many generations dedicated to preserving the family legacy.

( All Statistical 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 succession planning issues through incentives supporting advisory and mediation services. Contact us today on [email protected].