Build a Strong, Non-Exclusive Board of Directors
A strong board of directors provides financial guidance to a company, develops long-term priorities and elects executives to run the operation. To accomplish these goals, directors need to meet frequently and be able to objectively view how the business is being run.
Yet, in family-owned companies, this isn’t always the case. Sometimes boards start out strong but, over time, meetings dwindle to only one or two a year — or even none at all.
Regular meetings and close involvement in company operations is critical. Family business boards need to plan successions, advise the senior generation, monitor the younger generation, keep shareholders informed, structure governance and keep an eye on the bottom line.
Family boards tend to be small, and many include multiple family members involved with the business in question. Although you don’t necessarily have to keep relatives off the board, you shouldn’t limit members to only family members.
Consider bringing in some outside expertise to ensure the business stays on track and that decisions aren’t influenced by family relationships. Accountants and lawyers may have valuable experience to offer the board.
Some of the pitfalls of a family-dominated board include:
- Secrecy — no sharing of vital information.
Lack of understanding of the board’s role.
Using outside directors only to advocate a family member’s position.
Weak board management.
Exclusion of truly objective outside directors.
Stay objective when adding outside directors and look for people with specific expertise that will aid your company. For example:
1. A construction company could bring in directors with knowledge of financial, safety and union matters if it doesn’t already possess that expertise among family board members.
2. A publishing enterprise might look for directors with retail, printing and electronic publishing expertise.
Anyone considering joining the board of a family-run business should review the following dangers:
- One relative or group may try to make pawns out of outsiders.
Family culture and dynamics can be difficult to understand.
Outsiders may be relegated to business-only decisions.
Issues such as succession, family governance and family councils may be difficult to comprehend.
One final note: Family-owned businesses are generally encouraged to buy directors and officers (D&O) liability insurance. Without a D&O policy, you may have a difficult time finding outside directors to fill the positions. To limit your D&O liability, you’ll also need to familiarize yourself with, and closely follow, all financial reporting standards required by law.