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 form 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.”
A family member who works in the business may bring the qualifications of understanding the business to their role as a director, but that is not sufficient. Navigating this ‘dual role’ for family directors who also work in the business requires that the family develop guidelines around this complexity and underscores the importance of specific board training and mentoring for operating owners who also serve as directors.
Family owners who are not working in the business also need training so that they can contribute as full members of the board. Family directors (especially those who do not work in the business) 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. This is a complex and touchy subject because it can be the case that the business has recruited accomplished independent directors whose business experience way exceeds that of any family member, making it intimidating to weigh in on matters far outside the scope of competence of a given family director.
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. Independent directors and management need to understand and value this important role so that they make a point of seeking out family directors on key topics or matters that the family has deemed of special importance to the owners.
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. While it is true that getting a sense of what goes on at the board can be helpful, this approach cannot be over-used or done with little consideration or input from the independent directors.
( 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) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt
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