In the coming days, a project I have been working hard on, together with the team at EMCS, will kick-off. The first cohort of the accredited course as an Award in Leading a family Business will start their journey next week. Amongst one of the first topics to be covered in Module 1 is Corporate Governance and the importance of having a fully functional board of directors. Any family that owns a family business must primarily consider where their family business is headed. That’s determined by who is steering the business and in what direction they’re headed. This is even more compelling as we face the rocky waters of rising inflation. If you wish to have a business that is resilient, family business owners you must make sure your board is intact and functioning optimally. The board of directors is primarily responsible to determine the company’s direction, as a collective group, similar to the way that a captain steers a ship.

However, unfortunately, when I ask family business owners whether their business has a board, many owners reply “no.” The response is usually meant to indicate there is a board on paper but it’s not functioning at all. Most family businesses have a board created at inception in the governing documents i.e. their Memorandum & Articles, but although created that board of directors is dormant. The main reason for this is that normally control in family businesses is the hands of the founder or other dominant family members who may or may not actually be on the board. This creates an unnecessary gap in corporate governance that will cause strategic complications at some point in the future, if not today.

What’s the purpose of the board?
While there are a variety of formats for boards, depending on the size and complexity of the business. However all board of directors serve the purpose of providing oversight, guidance and representation of the owners’ interests. By definition, a board should operate at the strategic level and not get caught up in the day-to-day administration. Clear delineation between the big picture questions that a board must consider and the practical, tactical work of management is essential. In a family business, the board must also ensure that the business operations align with the values and goals of the owning family. That’s because, in the end, the ultimate fate of a business (e.g., sale, merger, or dissolution) is determined by the owners. Not management.

Who should be on the board of a family business?
Many family business boards consist solely of family members. In many instances these same family members are employed with the same family business and hence dealing with all sorts of operational matters. While this might provide some comfort to family members that their interests are being represented, especially when there are different groups or branches of family members, it’s rarely advisable. Indeed, it might end up harming their interests — the opposite of what they are seeking to accomplish. This is especially true as industries are being transformed at increasingly rapid rates and when disruption is the name of the game for many business models. Board members must collectively possess knowledge, skills, and experience ranging from finance & economics, law, industry trends and IT & technology. Issues such as audit, compliance, and compensation can’t be ignored for the sake of the family dynamics that often drive board member selection. At the same time, a family business board must also have one or more members — family or non-family members — who understand and champion the values and goals of the family owners.

How should a family business board operate?
Some family owners have a board that meets every day or once a week. In these cases, the distinction between management and governance is being ignored. Just as the captain of a ship can’t reconsider the direction every minute (it’s better to set the direction and head for it without making too many adjustments), a board needs appropriate space and time to focus on key strategic priorities. A board that meets too often inadvertently takes away precious management time and risks micromanaging issues that are not the board’s responsibility. Quarterly meetings are often the norm, though in the start-up stage or times of crisis more frequent meetings may be advisable. The chair of the board must lead the meeting with a combination of structured time for key presentations and decisions, while ensuring that all voices can be heard. The best board chairs understand how to use time between meetings to get input on agendas, air difficult questions and issues, and identify hot topics that could derail not just a meeting but, worse, the overall direction of the board.

Why is it so advisable to have a external independent non-executive director?
With the term “ external non-executive independent director” we often mean a non-family director who is not employed within the family business. Some family owners pick a close friend or confidante, which gives comfort that the director can be trusted, but often this is no better than appointing a family member who doesn’t have proper board qualifications. In fact, it’s best to create job descriptions for board member focusing on the purpose and needs of the board before beginning to consider possible candidates. Further more, once an independent director joins the board, it’s essential to create a system that will respect their voice and input. Ultimately the future of the family business is in the hands of the board and thus independent directors should not be purely and their experience, track records and capabilities they can bring to board.

The nature of business, and the duration of businesses, is changing rapidly. Businesses need to be nimbler and more open to fundamental changes that are existential in nature. A board of directors must be willing and able to consider when, whether, and how to change business models, management structures, industries they operate in or arrange a sale of part of the business or the whole lot. In the end, a resilient business may not even be the highest goal. Family businesses increasingly face questions that require more than managerial expertise, but rather governance structures and processes that balance the needs of the ownership, the business and the family.

Registrations for the 2nd cohort for the accredited course “Award in Leading a Family Business” being offered by EMCS Academy are now open. Please click HERE to Register. We will also help you gain funding for this course. All cohorts are made of just 15 participants and hence they fill up very fast!