Corporate governance debates created more caution among many family business owners to start with or expand outsiders and non-executives on the board. A common reaction I get is that regulations have turned non-executives into ‘box tickers’. “They don’t understand anymore what it means to be entrepreneurial and take risks. They check whether their personal liability is in danger and tick off the items on their checklist”, as a second generation CEO told me recently. Indeed, it is something that can happen but the real question is why do non-executives move into the direction of becoming box tickers. Is it only new laws and regulations they feel they have to comply to? Or, could it be something about how the board functions? Is it about how the dialogue between executives, family and non-executives is taking shape in practice?
There are several reasons that make non-executives cautious.
In some cases non-executives are used as sounding board but only when the family feels the need. It’s one way instead of a constant exchange of ideas and questions. Sometimes there is a lack of information or transparency on decisions made by the family. Especially when board members are confronted with decisions the board should know about or least have been consulted on. It also happens that there is a mismatch of expectations. Monitoring and control are assumed to be the primary goals of the board by some board members versus the role of sounding board for (family) executives or the entrepreneur.
A final reason to mention is the lack of understanding of the special dynamics of family businesses. Non-executives underestimate it on the one hand and family business owners don’t include it as an important element in the profile and assessment of board candidates.
These and other reasons easily lead to a board culture that becomes more formal, more procedural and more risk averse. It dilutes in depth and open-minded discussions within the board. It can also lead to a lower level of trust.
A constructive and inspiring dialogue in family business boards is hardly influenced by regulations. In my experience effective family business boards adapt to new regulations but keep the core in tact: a board culture that is build on mutual trust and respect between the non-executive outsiders and the family, a board that puts its sounding board role at the forefront, as well as a shared willingness to discuss in depth the strategic issues at hand.
How do they do that? Some examples.
One board adopts the 80/20 rule: 80% of board time is used for strategic discussions, 20% on finance and compliance issues. Another board puts a strategic topic on every agenda. Management is invited to present the case and background followed by an in depth discussion. Some boards start every meeting with the A.O.B. (any other business). Usually this is put at the last item on the agenda. By putting it first the board ensures there is time enough for pressing issues and that there is a good balance between long-term focus and short-term priorities. A final example is a family business where the non-executive outsiders meet with the family owners separate from the shareholders meeting. One purpose is to make the next generation comfortable with the board and facilitate conversation between family and board.
Two good questions to think about when you travel back after a board meeting.
1) How did I add value to todays dialogue in the board?
2) What made the conversations fruitful or even better than the previous board meeting?