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”.
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!
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!
Once a crisis hits a family business, there is usually a quick scramble to put the pieces back together. Perhaps the family CEO is ill and unable to work. Maybe the company faces a cash-flow problem or unusually high turnover. Who can the owners turn to for objective help? In tough times and good times independent board members can be invaluable.
It is not the task of an independent board to run the company. They are not an operational arm. They will not decide which products the business should manufacture or sell and they won’t tell you how many shifts to run.
Instead, the independent board members typically deal with broader issues that affect the company’s success and growth, such as successor selections, strategic planning, liquidity and crisis management. In addition, an independent board can be extremely helpful in overseeing the executive management.
Note that independent directors serve more effectively if the owning family has done the hard work of articulation their own goals and values. It would be beneficial if the family would communicate to the independent directors what their function would be before they are asked to join the board.
Independent directors of different backgrounds and views are a precious resource to the business owning family. Bringing that strength and difference of perspective into the boardroom requires excellent listening, mutual respect and thick skin.
Developing an independent board is a significant step in the life of a family business – while it takes some effort to get established, done well, the value to the business is immeasurable.
We’d love to hear about your experiences in setting up or serving on boards for family owned businesses – please join the discussion…
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.
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.
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!