Tag Archives: boards of directors

Shareholder director selection as a two-step process

Amy Schuman
Amy Schuman

In selecting a relatively small number (3 – 5) of family directors from among a relatively large (25 +) shareholder group, a two-step process can be very effective.

Step 1: Identify family members who are qualified to serve as directors.

Step 2: Select from among the qualified family members.

Although this process  appears straightforward, it’s far from simple.

It can be challenging to agree upon a list of qualifications for family directors. To what extent will those qualifications be different from the non-family directors? Who decides the qualifications? And, even more difficult, who makes the judgment as to which family members meet the qualifications, and which fall short?

Once the desired qualifications have been established and qualified family members identified, how is the selection made? Are there term limits to ensure that a variety of qualified family members have the opportunity to serve? Is any consideration made to other factors besides qualifications, i.e. family branch, generation, geography? Is there a regular and robust board evaluation process to keep the focus on performance of directors?

Although best practices call for qualifications to be the determining factor in director selection, be they family or non-family directors, most families find it difficult (if not impossible) to ignore branch and share percentages when selecting directors. An ideal approach can be to acknowledge the desire for branch/share percentage representation, while agreeing that any seated director must meet the established qualifications. Happily, with larger shareholder groups containing experienced and able members, this is often easy to achieve.

In the sibling stage, it is common that all (or nearly all) interested siblings are able to serve as directors. In the cousin stage, this dynamic changes radically. Not all interested family members will automatically have the opportunity to serve as directors, as their parents did. Resolving this issue is one of the most difficult tasks facing the cousin consortium.

Many successful families in the cousin stage have solved this sticky problem by following a variation on the two-step process described above. They find that it answers many of the tough questions quite well. Dear readers, do you have experience – or wisdom – or tough questions – to share in this regard?

For more information, our book Building a Successful Family Business Board by Jennifer Pendergast, Stephanie Brun de Pontet, and John L. Ward can be an invaluable resource.


Who Should be Members of Your Board?

Otis Baskin
Otis Baskin

Often when working with clients to help them form or revamp a board we are faced with a list of qualifications that are strikingly similar to those of the current CEO:  “a current president/CEO of a business in our industry with size similar to ours”.  Of course the challenge is to find people meeting this description who are not direct competitors.  It is easy to understand why an executive would want to have similar experience on her/his board.  If the board understands the challenges and opportunities of a business it takes less time to inform them before a meaningful discussion. 

However, when any group is composed of individuals who are too much alike Group Think can set in and diminish innovation.  Group Think occurs when people are too comfortable with each other or too respectful of each other to challenge ideas.  A “rubber stamp” board cannot test ideas in the crucible of critical analysis.  Sometimes the very differences that cause us to spend extra time explaining an issue before we get to the solutions stage of a discussion can produce the most creative outcomes.  Having intelligent, committed board members from different backgrounds can provide new ways of thinking about old problems.  For example, the president of a company from a different industry whose customers, suppliers, or distribution channels are similar to yours may help you find alternatives your competitors don’t see.  Different points of view help us to look at problems from a fresh perspective and can break the logjam of “we tried that before”.


Information and Communication: The Challenge of Data Overload

Drew Mendoza
Drew Mendoza

A keynote speaker I heard twenty years ago, who promoted himself as a ‘futurist’, made the point: “don’t worry about the trash, we’ll find a way to deal with all the trash as better recycling technologies arise.  The thing you’ve got to worry about is the data.  We’re all going to be drowning in information.” 

Turns out he was spot-on.

In enterprising families, attention to information flow seems to be on the rise.  So too are family meetings, family councils and boards of directors are becoming more disciplined and more thoughtfully and strategically comprised.  *

The challenge for leaders of families and family firms is building the processes by which family members are educated and enlightened so that they can understand the data they’re receiving and apply it to metrics which indicate the degree to which the family and its enterprise(s) are reaching its goals.  Doing so results in more fully aligned shareholder groups and, as any CEO with multiple family shareholders will tell you, an aligned shareholder group makes the CEO’s job much easier.  In my experience, these are the same families that are more likely to achieve their business goals.

We’d love to hear from you – what steps are you taking to keep family shareholders both aligned and informed?

*For a great read on family enterprise boards read Building A Successful Family Business Board: A Guide for Leaders, Directors and Families


Female Board Members

Amy Schuman
Amy Schuman

Why should it be difficult to find well-qualified females to serve as independent directors for family business boards? Very frequently we are specifically asked by clients to present them with female director candidates. (Why do they make this request? Stay tuned to this blog later this week.) Sadly, in several cases this request proved quite challenging. Why should this still be the case, after all the gains that women have made? In discussion with several FBCG colleagues, the following thoughts arose:

1. Chicken and Egg Problem: Families seeking independent directors usually want candidates who have experience on boards. Women often lack experience on for-profit boards, although they frequently have non-profit board experience. Families can be reluctant to give a woman her first chance to serve as a director, no matter how qualified.

2. Women Commonly Serve in Non-Operating Roles: Director candidates with experience as  CEO’s, Presidents or other operating leaders are most desirable. Many women concentrate their careers in HR, PR, Community Relations, etc. and are seen to bring less value to the board.

3. Women Still Lack Desired Experience: Direct experience with international expansion, successful innovation, strategic redirection, M&A etc. are highly sought after in board members, and women tend to be less likely to have those experiences.

Since women are often behind on the more traditional ‘leader’ front, families may need to be open to a different set of experiences in order to find strong female candidates. There are many well-qualified women with backgrounds in finance, HR, law, banking, consulting or education who could be great board members, even if they don’t fit the standard profile of a proven leader. That said they can be excellent strategic problem solvers.

What have you found as you seek well-qualified women as board members?

Later this week – why many families actively seek to find qualified women for their boards.

(Thanks to my colleagues, Stephanie Brun de Pontet and Jennifer Pendergast, co-authors with John L. Ward, of Building a Successful Family Business Board, for sharing their insights in this regard.) Top of Form


Should we encourage family employment?

Jennifer Pendergast
Jennifer Pendergast

In a recent study of large successful family businesses, I noticed an interesting trend.  Families businesses that have spent generations discouraging family members from entering the business are now developing programs to pull them back into the fold.  They have learned that in their efforts to ensure that only the most qualified members of the family entered the business, they have discouraged family interest in the business.  

While businesses only become old and successful by having strong management, family businesses also need to maintain owners’ interest and engagement in the business in order to survive as a family owned entity.  So, many of our study participants are putting in place orientation programs for next generation family members to help them learn about the business and increase the chance that the most qualified will elect to join.  Regardless of whether the family members join, the business benefits from well-educated owners who appreciate the business and may one day take on important responsibilities on the board of directors or family council.


The Emotional Benefits of a Board

The Emotional Benefits of a Board: By Stephanie Brun de Pontet, PhD

While many articles have been written on the importance of a well-functioning board of directors to the sustainability of a family business over generations, it is not unreasonable to also pose the more immediate and selfish question: why would I want a board? What is in it for me today? How can a board help me tackle the ‘hard stuff’ that I sometimes would rather not have to address? There are plenty of good ‘business’ reasons for having a board – but the truism that ‘it is lonely at the top’ generates a series of emotional benefits that can also be derived from having a board.

Just to name three:

Stephanie Brun de Pontet
Stephanie Brun de Pontet

Experience, Expertise and Empathy. A board of risk-taking peers can ease the fear of the unknown and help anticipate new challenges. Individuals who have the experience of having been in the CEO chair in a down cycle, with limited access to credit, will not only have practical advice and possible solutions, they will also have true understanding of the pressures a business leader faces every day.

A Sounding Board. Like most anyone else, family business owners are full of ideas that range from great to mediocre. What many of them lack is a sounding board to help evaluate those ideas—a panel that is knowledgeable and objective and will listen and react honestly, appropriately and without unintended consequences.

Confidential and Empathic Counsel. The empathy independent directors have for the leader and owners of a family business confronting an intense dilemma will enable them to lighten the mood, and think through rational options in a way no others could. For example, how can we decide if we should pay more dividends to appease frustrated shareholders, or hold more cash in reserve to put the company in the strongest possible position coming out of this recession? Making the decision to put together a board of directors with independent outsiders who can really push you to address the hard questions can feel like a frightening leap to many business leaders. However, in our experience those who take the plunge find far more emotional support and encouragement from this group of individuals than they ever expected.

We would love to hear about your experience with your own board, or in sitting on someone else’s board and the opportunities you saw for this kind of emotional support (and sometimes push) for the CEO.

I would also like to invite you to consider our upcoming webinar on Family Business Boards. We will be addressing many of the issues that face family businesses when trying to get the most out of their boards.

Our September 29th webinar, Building your Board for Maximum Impact will answer many of the questions around developing your board, give you practical ideas and best practices and allow you to ask questions that are pertinent to your family’s board.

To register or learn more about our webinar just go to www.efamilybusiness.com Hope you can make it!


Tensions in Family Governance


Amy Schuman
Amy Schuman

A large family business in the Midwest with an active – and highly effective – Family Council has been struggling recently with two nagging questions: 

  • Should the bulk of Family Council work be done by one designated leader, or should it be spread out among committees and committee chairs?
  • Should we pay Family Council leaders and committee members for their time and efforts? If so – how much pay is reasonable?

Clearly, on the first question, a ‘both/and’ approach is desired, but not always easy to accomplish. 

One strong, designated leader provides efficiency and clear accountability, but can also lead to a de-motivated and disconnected family.  Relying too much on one person for a long period of time may lead to their burnout, with no prepared successor. Others in the family may not fully develop their leadership abilities or have the pleasure of serving as leader. 

On the other hand, an active group of committee members and committee chairs provides a wider family connection and fosters family passion and commitment, but can take a lot more time to get things accomplished. It’s hard to hold a group accountable for results, and the Family Council can bog down in the face of multiple, often diverging approaches and opinions. 

This paradox – the need for both “Strong Centralized Leader and Strong Dispersed Group” – is probably very familiar to you. Although at first the two appear to be mutually exclusive, upon closer examination we can see that they actually support each other. A strong individual leader will foster strength in committees, and strong committees create conditions for strong individual leadership. 

Have you faced this common tension – and if so, what has been your experience? 

We’ll talk about Family Council compensation later this week… stay tuned.


Governance : Why is it so hard to define?


Amy Schuman
Amy Schuman

This week I’ll be speaking to a group of family business owners in the Milwaukee area, and the topic they chose was “Governance”.  When they requested that topic, first I felt excitement – but it was soon followed by a bit of dread.

I felt excited because governance is such an essential component in family enterprise strength and continuity. I also felt dread because, even after years of helping families reap the benefits of governance structures like Family Councils and Boards of Directors, I still find it difficult to come up with a simple, clear definition of governance.

Like most people, my mind immediately seizes upon Boards of Directors as the prime example of governance. Indeed, a web search on the term ‘governance’ quickly yielded the following:

That relatively simple (!) definition may work for public companies, but, the complexities of family enterprise can require more of a multi-faceted approach to governance.

For example, as families become larger and more complex, they also appreciate the benefits of more formal family governance, most often in the form of a Family Council.

Families that pursue their own foundations and other philanthropic efforts come to appreciate the benefits of strong governance in the form of Foundation Boards.

As families move into the cousin stage – and beyond – they seek governance structures to serve their larger, more dispersed ownership group. Often called Ownership Councils, these bodies provide a structure for balanced participation and oversight on behalf of shareholders.

Families with Family Offices also find significant benefits from the oversight and expertise of an objective governance group of some kind.

Given all this complexity – what’s a good, simple definition of family business governance? To inspire you, I will go out on a limb and offer my own working definition – as follows:

  • Family enterprise governance provides an established set of systems and structures that ensure sound and fair actions and decisions, often by a small number of well-qualified people on behalf of a larger number of stakeholders.

I know this definition has plenty of room for improvement – what’s missing? What’s your current working definition of ‘family enterprise governance’  – and how does it help you get the results you seek?