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!
Are you developing a successor for your position, with the objective of transitioning out in the foreseeable future? If so, you have likely experienced the apprehension and emotion associated with that process. We have worked with leaders who identify a transition date and others who have not, with successful outcomes in both scenarios. That said, we encourage you to think about identifying a specific transition date for a number of reasons:
It sends a message to your successor, your employees and other stakeholders that you are serious about the transition;
It motivates you to develop key milestones in the process that need to be met in advance of that date;
It prompts your board to set expectations for progress reports along the way, and provides you with a source of feedback on that progress;
It helps you envision and plan for your role beyond that date – perhaps as board chair, as a retiree, as a leader in a new capacity;
It sets in motion a variety of other decisions throughout the organization that help prepare for the transition.
Setting a transition date is definitive, and makes it very real, and perhaps a bit scary. Yet if it doesn’t feel real to those around you, the energy invested in the transition might be insufficient to meet your expected outcomes. This might be the biggest business decision you ever make; setting a transition date is one of many steps in ensuring transition success.
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!
Junior generation family members sometimes tell us that they believe no decision-making authority will come to them before senior generation family members either exit the business or die. And in some cases, they’re right. That is somewhat discouraging, and also a deterrent for next generation engagement.
We have found that decisions are difficult for the next generation to manage when their “transition” goes from making no decisions to making all decisions.
Why not provide the next generation with opportunities to make decisions (either related to the business or the family) before you make your exit? You might not want to start with key strategic decisions, or life-altering decisions on behalf of the family, but there are many options. Here are some examples:
Planning the next family meeting (location, social time, draft agenda);
Making a hiring decision without your stamp of approval;
Designing a family website or newsletter;
Selecting his own mentor in the business;
Choosing recipients of philanthropic donations;
Setting up a pilot project for a new product or service;
Identifying development workshops/conferences that are most appropriate for her generation;
Make some investment decisions with other members of the junior generation with a fixed sum of money;
There are many opportunities to build confidence and establish credibility among the next generation through increased decision-making. What decisions can you identify in your family that might engage them, while developing decision-making competence?
The work associated with being a member of your Family Council is significant. You are representing the larger family, and committing to work with the leadership group as they develop and implement specific initiatives. Family Council work is often meaningful and rewarding. At the same time, it can feel burdensome, tedious and thankless. Family Council members do not always get much reinforcement for their work, and it is not uncommon for Council members to reach a burnout stage during their tenure on the Council. There are a few things to keep in mind that might help manage potential burnout:
Develop a plan for the next one to three years that maps out overarching objectives and specific initiatives for the Council;
Work to develop a set of actions that you can actually achieve, with the limited resources (typically human resources) you have available;
Be sure to engage with and manage your Family Office resources optimally;
Do no hesitate to selectively reach out to family members not on the Council to provide their expertise and support for specific projects;
Ensure that Council members communicate regularly on progress, and instill some accountability measures for follow-through responsibilities ongoing.
These are just a few suggestions for Family Council members to consider as they navigate the diverse and expansive responsibilities of a critical governing body.
Many of our clients have either transitioned to, or are in the midst of transitioning to a more professional board, made up of both family members, and independent outsiders. Based on a survey we conducted with business owning families, there is a clear distinction between the rated “effectiveness” of a board with just family members (47%) versus those with either a minority, or majority of independent board members (91% versus 100% respectively).
This is telling, and may foster further interest and/or action in moving forward with an independent board. Yet, that transition by itself will be insufficient to produce an “effective” board. Boards (Advisory or Fiduciary) add value for a number of reasons, and composition is just one reason for the value boards bring to shareholders. Below is a list of other important variables that influence the effectiveness of your board:
A clear, specific agenda that outlines both the content and the purpose of each board topic;
A board packet that:
Includes all the pertinent information board members require (no superfluous, ‘thrown-together’ information, but a collection of succinct, meaningful data);
Focuses the readers’ attention on the two or three critical strategic issues that will be discussed at the board meeting;
A packet that arrives at least one week in advance, so the board members can adequately prepare for the meeting, and organize advance phone calls with questions if necessary.
Some social time to set up a ‘rhythm’ for the actual meeting – typically a dinner the night before the meeting.
A strong Chair – someone who not just moves the group along from one topic to the next, but someone who can listen to, understand, assimilate, and feed back to the group the meaning of what has been discussed, and what implications those discussions have for future action.
It is tough to fit ALL of the components of a successful board into a blog. But this provides a quick summary of items to think about when developing and managing your board for optimal value.
We hear from Family Council members that they sometimes dread going to Family Council meetings. There are a number of reasons why this happens, and it is not uncommon for Family Council members to feel burnt out from the long list of “to dos”, the lack of time ‘to do’ the work, and the feeling of being overwhelmed. The following five considerations might help to alleviate some of those feelings:
Ensure that the Family Council agenda is specific: does it have timeframes around discussions, does it include questions or comments for participants to reflect on and prepare for in advance of the meeting?
Avoid getting mired in details that are best left to committee members. This not only keeps those details where they belong, it shows that the Council has faith in the committee chair’s ability to champion and execute specific initiatives;
Recruit Council members who are interested in doing the work, making a difference. This may mean that you need to revisit the branch-representation rule, if you have one;
Prioritize objectives, and projects. If FC members constantly feel overwhelmed with Council work, it is possible that the initiatives planned for the next year or two are simply too ambitious. Projects can look great and sound wonderful on paper. Finding the time to implement them successfully can be impractical, given that most people are time-starved. Do what is do-able!
Stop beating yourselves up for what is NOT getting done. Look at what you’ve accomplished. Celebrate those accomplishments and communicate them to the family.
Howard Buffet is Warren Buffet’s 56 year old son, and works as a corn and soybean farmer in Nebraska. Warren Buffet has recommended to the board that Howard succeed him as Chair after his retirement.
You might question this choice. Berkshire is a large enterprise that requires rigorous oversight of its operations, and a Chair who will ensure that strong governance is perpetuated after Warren Buffet retires. We might envision an industry expert, or at least someone who has work experience in multi-business enterprises.
Yet Howard Buffet’s background doesn’t fit that profile. He understands agriculture, and through the Howard G. Buffett Foundation works to improve the standard of living and quality of life in developing nations, particularly Africa. In addition to teaching farmers how to grow successful crops, he encourages them to learn accounting. Howard Buffett would not be considered an industry expert. But Warren Buffett is more concerned with engaging a Chair at Berkshire who understands the importance of perpetuating the values and culture that have helped create Berkshire’s competitive advantages. And he has pointed out the importance of this in family-owned businesses: “Family-owned businesses share our long-term orientation, belief in hard work and a no-nonsense approach and respect for a strong corporate culture,” said Buffet during a talk in Switzerland.
Howard Buffett may not seem like an obvious pick, yet based on what we know about continuity through generations in family businesses, he might just be the very best strategic choice for leadership at Berkshire Hathaway!
Family members that work together spend many days of the year dealing with business challenges, some of which have been particularly difficult since 2009. Then the holidays arrive and for some, the thought of spending Christmas together presents additional stress.
Here are a few suggestions that might help your family enjoy the holidays together:
Be mentally prepared. Holidays create stress and it often affects our behavior. We might be less patient, suffer from tension headaches, and react negatively to others. Prepare yourself to react positively to others. Pause before you respond to comments that might create conflict.
It’s likely that you know what triggers negative reactions and anger among family members, particularly if you work together in the business. Avoid those triggers.
Manage alcohol intake. One too many drinks might prompt an inappropriate comment or tone. If other family members are drinking in excess, it might be a good time to leave the party.
Use these family occasions to celebrate successes in the business. What happened in the last year that was positive for the business, shareholders, employees, and customers?
Spend time apart while visiting with family. While the primary objective is to enjoy time together, sometimes that is best accomplished by planning some time out (even for a drive) by yourself, or with your nuclear family.
Take advantage of an opportunity to visit community beneficiaries of family philanthropic initiatives.
Have some fun! Remember that in theory, this is one of your primary objectives. Take the time to relax and appreciate your family. They might even re-energize you for a better 2012!