As expected, family businesses have emotional attachments, whereby, what comes normal to a regularly governed company in terms of decision making does not necessarily mean that it comes in equal measure when it comes to taking the hard decision with family businesses.

Family business board diversity improves the bottom line. The message is clear: Take diversity seriously, make the necessary changes, and your company will thrive. Additionally, the PwC 2020 Corporate Governance Survey showed that 49% of directors believe that at least one director on their board needs to step down, and 21% say two directors need to go.

One would think that if board diversity is a proven way to increase profitability in a family business, and many boards have at least one dud-director, why are we not making more progress? All of the data seems to point to complacency. In the same PwC study, only 12% of boards chose not to renominate a director, and in only 14% was a director asked to retire from the board. Why are family business chairmen and nominating committees willing to wait out low performers? Why are they willing to forgo a high-performing, results-driven board? It all boils down to the emotional attachments involved as previously mentioned.

The unwillingness to have a difficult conversation or make a difficult decision is the source of board dysfunction. One might blame the director who is over-boarded, under-prepared for meetings or determined to talk ad nauseum; however, there is only one person in the room who is ultimately responsible for the behaviour in the boardroom: the Chairman. The job at hand involves having the difficult conversations about whether the individual is a non-performer or a low contributor, or whether it’s just time for a fresh perspective.

In any system dynamic, it takes two parties to create dysfunction. The responsibility lies with the chairman to do their part to intervene. Board excellence only comes with a low tolerance for unwelcome behaviours and a willingness to address the issues. Waiting for a director to age out or term out is the recipe for a low-functioning family business board that will not bring strategic value to the family business. Avoidance of these challenging conversations prevents all of the positive things that come with change. Bringing on new, diverse directors will energize your board. You will be challenged in your common precepts; you will find yourself having a more robust dialog about the family business’ issues and challenges. The family business board will deliver greater value to the family business. Given the cost of time and money to have a board, it is the chairman’s responsibility to get the most out of its directors by being willing to do the most formidable job and this can only be done by having the difficult conversation wherever necessary.

( All factual and statistical information presented in this blog has been obtained from an extract of an article from Forbes.com) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt

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 familybusinessact@gov.mt.