Why family businesses build stronger boards

Kristi Daeda
Kristi Daeda

Boards in family enterprise can be as diverse as the families they serve. And just as the family changes, the board must change to respond to and stay ahead of new circumstances – both predicted and unforeseen.

In the early stages of the business, a board is often comprised of a founder, one or more other family members, and maybe a key non-family executive or two. Their conversations are often unstructured and decisions may or may not be communicated to other stakeholders, such as other owners or future owners or key management. This “board” may evolve to include paid advisors, like an outside attorney or accountant. Sometimes, close friends, business partners, or other trusted supporters are invited to participate.

As time moves on, a family business may reach an inflection point – a place where the board structure as it exists may not be suited to address the challenges or questions the business is facing. This is where we begin to engage with families in board development, the process of defining appropriate business governance structures for their unique situation.

What brings family businesses to build stronger boards?

  • Professionalization of the business. As the family strives to improve their business approach across the enterprise, it’s natural to look also at improving the board function. Shareholders, employees and the community may perceive the business more favorably that has developed criteria for board service and recruited well-respected leaders to serve.
  • Generational transition. Many founders seek to formalize a board to provide impartial guidance on succession planning, support the successor and provide a structure with which the next generation can effectively interact.
  • Issues with business growth or performance. If a business has plateaued or is struggling, leaders often look to independent directors for a fresh look at strategy.
  • Market opportunities. As with those that are struggling, businesses experiencing rapid growth or seeking to capture market opportunities can seek perspective from independent directors that have done similar things in their own careers.
  • Family conflict or disagreement. Tensions in the family may make board discussions unproductive or impossible. The board development process can be the conduit for better understanding of the role of governance and trust in the board. Plus, the board itself can be an impartial and safe venue for discussing challenging issues.
  • Changes in management. A capable board can provide oversight and accountability through the management transition.

A well-constituted board is an advantage at any stage. When the normal and predictable challenges like those above appear on the horizon, the advantages of a strong board become even more compelling. If you don’t yet have a board, or are unsure of whether your board is functioning as well as it should be, it may be time to begin questioning what that board would look like, and how it can support your family enterprise.

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