The Chairmen’s Forum, a group of experienced chairman from major corporations, has stepped up its effort to encourage the separation of the roles of board chair and CEO. The group endorses the appointment of independent chairmen . Companies in the S&P 500 which divide the roles have almost doubled in the past five years. While the practices of public companies do not necessarily provide models to family businesses, in this instance we agree with William E. McCracken, head of the Chairman’s Forum, that “boards function much more effectively” with responsibilities split between the chair, who manages the board, and the CEO, who manages the company.
by Stephanie Brun de Pontet &
John L. Ward
We surveyed 100 large, sophisticated family firms in Brazil, at a recent workshop we led for HSM. Following is their board experience.
What Type of Board?
- 40% have a family dominated board.
- 24% have an independent led board.
- 20% have a management dominated board.
- 16% have an advisory board.
Rating the Independent Director
- 63% said their independent/outside directors are “very valuable.”
- 30% said they were “satisfactory.”
- 6% said they were “window dressing.”
- 1% said they were “not helpful.”
Next Generation Participation?
- 10% are invited to join at 21-25 years of age.
- 25% are invited to join at 26-30 years of age.
- 25% are invited to join at 31-35 years of age.
- 40% are invited to join at 35 or older.
- 31% invite next generation “observers.”
- 69% do not.
- 30% based on shareholding.
- 38% based on family representation.
- 32% based on merit qualifications.
With special thanks to HSM of Brazil for their dedication to family business education.
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.