Tag Archives: Boards

Is Good Governance a Waste of Time?

Otis Baskin
Otis Baskin

OK, let’s just admit that productive people almost universally hate meetings – “what we do instead of doing something” is the frequent sentiment expressed to me.  So, too often, the required meetings of corporate boards are simply “formalities” or sometimes an attorney’s creative writing exercise.  I have had business owners tell me the primary reason they decided to organize as an LLC was to avoid the need for a board of directors. If board meetings are just a waste of time, why are they the center piece of any discussion of good governance in business?  As with most things meetings are only as productive as the people who manage them.  If the board chair manages the agenda, the discussion, and the action items well board meetings can be extremely productive. 

If the board chair is thinking ahead to the next meeting well in advance the agenda and pre-meeting information can be distributed with enough lead time to allow everyone to come prepared.  If the chair manages the discussion in a way that makes sure all opinions are expressed and understood but does not allow anyone to “hi-jack” the meeting for their own purpose both the quality of decisions and the satisfaction of members will improve.  Rather than a time waster, good governance can be a time saver by testing ideas before they are implemented and avoiding costly mistakes.

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The Board’s Role in Strategic Development

Kelly LeCouvie
Kelly LeCouvie

Most organizations with fiduciary boards have a tradition of management presenting a prepared strategic plan to the board for approval. Management’s role has been to complete the plan before discussing it with the board. There is a clear distinction (and needs to be) between providing oversight of the business and running the business.

At the same time, reaping meaningful value from your board is typically a function of how well they understand the business. And one way to enhance that understanding is by further engaging the board in the strategic process. Some boards will participate in an annual two or three day strategic retreat, where management has developed the core elements of the plan but discusses it with the board as a work in progress, rather than a fait accompli. This engages directors in important discussions about future growth, capital needs, resource allocations, and risk management. The discussions at this earlier stage help shape the plan, and further ferret out the implications of strategic options. There are other ways of getting directors more engaged around strategy, such as interim discussions with individual directors, whose specific expertise can help develop elements of the plan. This is a great board agenda item  – if you think directors can add more value to strategic development, ask them how they feel they might do this moving forward, and develop a plan for their participation!

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How do you Identify Important Director Attributes for Your Board?

Kelly LeCouvie
Kelly LeCouvie

When you sit down with your existing board and/or management to discuss what you are looking for in a new director, it’s likely that you create a list of skills and experiences that you feel a director should possess in order to add value to your board. That makes sense. Specific industry knowledge, skills such as corporate finance, marketing, operations, perhaps experience in negotiations or government relations might be of value to the board.

We encourage boards to also spend time identifying personal attributes that an effective director should possess. What type of person might best integrate with the culture in the business and perhaps the family? Are there specific personality characteristics that you know might trigger conflict or unease with the board? Do you have a culture of inclusion that allows for input from every individual at the table, regardless of their background or level of understanding? Do you make decisions as a board that might subordinate profit to other considerations that are important to the family (such as community philanthropy, or care for family members in need? These questions prompt you to think about what kind of director might be most compatible with your board. You might find a director candidate with the right skill set and relevant experience, but they are driven exclusively by bottom line results. They might have little or no tolerance for tailoring executive positions to the needs and talents of family members. Or perhaps their ego requires more ‘air time’ in the boardroom than is appropriate.

If you are looking at director candidates, look beyond the skills and experience base they bring  – ask yourself about the cultural and chemistry ‘fit’ with the group before you make a commitment that is tricky to undo!

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Great boards do exist!

Norb Schwarz

In our work we sometimes come across a board that is working exceptionally well and adding substantial value (both financial and organizational) to the business and for the shareholders. I have been fortunate to work with a number of such boards. Following are some common characteristics I have found in these highly functional boards.

  1. Majority (usually minimum of three) experienced independent directors.
  2. Commitment from shareholders and management to welcome independent perspective and insight.
  3. Director commitment to prepare for meetings and to be available outside of meetings.
  4. A minimum of financial/audit – compensation – and governance committee functions.
  5. A knowledgeable and committed Chair who is willing to take responsibility and grow with the job.
  6. Effective board structure and process.
  7. Positive synergy among all board members.
  8. Strategic focus.
  9. Open communication.
  10. Willingness to make difficult decisions.
  11. Management and shareholder willingness to accept board decisions.
  12. Director familiarity with shareholder expectations and senior management capabilities.

This is certainly not meant to be an exhaustive list, and we would be interested to hear your thoughts or experience with board effectiveness.

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Creating Group Norms

Jennifer Pendergast
Jennifer Pendergast

The decision making structure of a family business can be very complicated. Decisions are often made at the family level, the board level and the business level.  Most decision- making groups spend their time focusing on the decisions that needs to be made, but don’t spend much time thinking about the process of decision making. Yet focusing on how you do the work can be an important element of a successful result.  Think about a group that you are part of in your family business – perhaps organizing a family meeting, as part of the family business board, or as part of a management team.  Has your group ever stopped to discuss the norms or rules for how the group works together?  In most cases these norms or rules are assumed but not written down.  And, in many cases, groups may not agree on norms or may not be happy with the norms currently being followed. 

Some norms to consider include – how will we capture the decisions from our meetings, who is responsible for setting the meeting agenda, how do other team members provide input to the agenda, how will we communicate with each other between meetings (e.g., via email cc’d to all members?), how and with whom will we share information outside of the team, who may be invited to attend group meetings outside of the immediate group, what is the process for adding members to the group, or asking members to leave, etc.  Taking a break from decision making to work on the process of making decisions can be very beneficial from the group – with improvements in speed and quality of decision making as a result.

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The Benefit of Sharing with Other Families

Jennifer Pendergast
Jennifer Pendergast

Recently, I have noticed a trend towards more benchmarking across family businesses.  A number of clients have requested that we introduce them to families with similar issues.  While they value consultant expertise, they really enjoy meeting one on one with other families to learn what has worked and not worked for them in building the infrastructure to perpetuate their business across generations.  This type of interaction is why university-based family business groups have been so successful.  They create a place where families can get to know each other and share their successes and failures.

Yet, the real opportunity may lie in reaching out to another family on a specific issue you are trying to address.  On the topic of family business boards, for example, there are a number of areas a family might want to learn more about: how to educate next generation board members, how to develop a board that oversees multiple family owned entities, how to select family members to serve on the board, how to communicate findings and actions from board meetings to the family, to name just a few. 

You may already know a family with similar structure to yours who could serve as a good benchmarking partner.  Or, you can use a consultant or advisor to your business to help identify a benchmark candidate.  Three keys to success – clearly define what you want to study, pick the appropriate benchmark partner and look at both successes and failures. 

Make sure you know what you want to learn and have written a set of questions before you embark on finding a study partner.  This will help you to define the types of partners you want and will ensure that everyone involved in the process has agreed on the output. Then select a partner or partners that are similar to you on relevant dimensions.  If you want to study next generation board education, finding a family that has the same level of board formality, similar generational structure and similar board structure will be helpful.  What business they are in may not be so important. With a clearly defined topic to consider and a willing partner similar to you, the last key is to remember that you can learn as much from success as failure.  Ask your study partner what they did that worked as well as what didn’t work.  If they had to do it over again, what would they do differently?  Armed with this information, you will make better decisions for your family and business.

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What good are boards?

Norb Schwarz

Recently one of the national business news programs asked its audience to call in to vote on whether public company boards are worthwhile or worthless. Commentary suggested that in many cases public company boards were headed by CEOs who were also the Board Chair and questioned whether a board under such leadership could be truly independent with primary loyalty to shareholders. The implied conclusion was that such boards have limited shareholder benefit.

That conversation caused me to reflect on the many family business boards I have had the pleasure of working with. Many of those boards include independent directors, some with a majority of independents.  Like some public company boards, some family business boards might be considered a waste of resources and others return many times the investment to the family shareholders. Interestingly, in my limited personal sample, the boards chaired by someone other than the CEO or those with an independent lead director tend to offer the greatest return to the shareholders. These high return boards have much in common. Among their many attributes, these highly productive boards had the following characteristics:

  • They are truly independent in that their qualifications were based on the skills they brought to the table.
  • The boards have a majority of truly independent directors.
  • They were not known personally to any shareholders until they were interviewed for the board positions.
  • They work well together as a group and respect one another’s contribution to the board process.
  • They respect the family and offer challenging support to management.
  • The independent directors meet regularly as a group.
  • The board engages in independent evaluations of its own effectiveness at least bi-annually. 

In conclusion, let me be quick to point out that the return to shareholders I refer to may not be a financial metric in all cases.  For example, it would be hard to put a value on improved family harmony as a result of the presence of objective and respected voices in the boardroom – but this can be a huge ‘return’ to family shareholders in a privately held business.

My sincere thanks go out to those independent directors who continue to give their best to our family businesses.

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Return on Board Investment

Norb Schwarz

Recently one of the national business news programs asked its audience to call in to vote on whether public company boards are worthwhile or worthless. Commentary suggested that in many cases public company boards were headed by CEOs who were also the Board Chair and questioned whether a board under such leadership could be truly independent with primary loyalty to shareholders. The implied conclusion was that such boards have limited shareholder benefit.

That conversation caused me to reflect on the many family business boards I have had the pleasure of working with. Many of those boards included independent directors, some boards having a majority of independents.  Like some public company boards, some family business boards might be considered a waste of resources and others return many times the investment to the family shareholders. Interestingly, in my limited personal sample, the boards chaired by someone other than the CEO or those with an independent lead director tend to offer the greatest return to the shareholders. These high return boards have much in common. Among their many attributes, these highly productive boards had the following characteristics:

  • They are truly independent in that their qualifications were based on the skills they brought to the table.
  • The boards have a majority of truly independent directors.
  • They were not known personally to any shareholders until they were interviewed for the board positions.
  • They work well together as a group and respect one another’s contribution to the board process.
  • They respect the family and offer challenging support to management.
  • The independent directors meet regularly as a group.
  • The board engages in independent evaluations of its own effectiveness at least bi-annually. 

In conclusion, let me be quick to point out that the return to shareholders I refer to may not be a financial metric in all cases.

My sincere thanks go out to those independent directors who continue to give their best to our family businesses.

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Do Good Board Candidates Find Your Business Attractive?

Kelly LeCouvie
Kelly LeCouvie

This is a follow-up to the October issue of the Family Business Advisor, which presents the non-strategic value of directors. We are often so focused on finding “the best” director candidates, that not a lot of thought is given to the circumstances under which they will find our family business attractive. How do we appeal to outstanding directors?

The list can be very lengthy, but there are a number of questions we often get from the candidates we try to recruit – some food for thought:

  • Is there currently a functioning board in place?
  • Are there other independent directors, or would I be the only one?
  • Does the family really want outside advice or are they just attempting to appease a group of shareholders?
  • Have they developed specific expectations for this position?
  • How would you describe the communication within the family (collaborative, conflictive, for example)?
  • Does the business have a strategic plan?
  • How would you describe the leadership style of the current Chair? The current CEO?

Remember that board candidates are interviewing you and your business as well. They want to commit to a board that works well together, knows how to be productive, and presents a culture that is aligned with their own values and business principles. So getting your ducks in a row prior to your search is a good way to send the right message to great candidates!

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