A board of directors can help your company set long range goals as well as address pressing business issues. To get the most value from a board, they should be compensated fairly for their time and related expenses. It is recommended that a board should meet at least four times a year and careful thought should be given to their advice.
Some sort of an honorarium is usual for board members. It can range from $250 to $5000 (or more) per meeting. The level and type of compensation depends on the size and type of the corporation. One possible way to figure compensation for a director is to take the top salary of the company’s CEO and apply the following formula: divide the total compensation of the CEO by 2000 hours. Multiply the results by about 50 hours, which represents four full day meetings, plus some preparation and telephone time.
The key issue to be considered is the extent to which the director adds substance to the family business. If there is going to be pay for board members, they should be people who add more value than they cost. Family members who serve by birthright rarely provide real value as directors unless they have the qualifications to be selected as board members for other businesses.
Typically, indemnifying directors from legal liability is sufficient to attract qualified candidates, although some companies buy officer and director’s liability insurance as added protection. For emergency meetings, it is a good idea to pay extra to enhance the director’s willingness to rearrange his or her busy schedule.
Your respect for your director’s involvement should be reflected in the fairness of his or her compensation.
Spring cleaning is a time to go through everything that has accumulated during the year (or years, depending upon how often you go through the ritual!) and determine what is still relevant to your life. This ritual can serve as an analogy for the important process of evaluating people that support your family business – board members, advisors, service providers – to ensure they are still the people you need to achieve your goals. Family business owners are often challenged by the prospect of replacing someone who has been invaluable to the business over the years but who may be ready personally to move on or who is no longer a good fit. Often these individuals stay on longer than the family or they would like because no one is willing to broach the subject. Recently I watched a client deal with the retirement of a long-time board member in a courageous and honorable way. The family members on the board informed this gentleman, a board member with well over a decade of service, that they felt it was time to refresh the board. They asked him how he would like to handle the announcement to the board – Would he like to retire or resign? Would he like to tell the board or would he like them to tell the board? Then they planned a dinner honoring his service. They worked with his wife to identify a gift that would be special – in this case tickets to a sporting event and an opportunity to meet the owner of the team. All of these steps showed respect for the director’s contribution and allowed the process to unfold in a way that made him comfortable. The result – the board members and family involved felt good about the decision.
We were recently with a forum of 10 non-family CFOs of large family businesses. When asked what are the “family business” issues most on their mind, they responded with the following (in no particular order):
A very thoughtful family we know developed a family task force to develop the criteria and qualifications for next generation directors. More important than their conclusions, following, is their process: They interviewed current non-family directors and board chairmen they know in other family businesses.
Criteria for Next Generation Directors
Know the company and know its culture. (Internships, company training programs, company mentors, or work experience are available as some ways to learn the company.)
Live the values.
Have three years of meaningful independent director board experience – as an observer or member – of a non-profit organization (beyond company foundation), a for-profit organization and/or of company subsidiary board.
Achieve success in chosen field of professional interest.
Boardroom competence (see competences that follow).
Respect of and by the family; active in Family Meeting process.