Transcript of the Show
Hello and welcome to this week’s show, we are going to be looking at family business boards this week and chatting about when you might need one, what their role is and who sits on it.
As a business grows and family involvement grows you can argue that the need for governance increases. With this comes the need for a board.
Typically this could be, as you’re moving from, say, a business that has been set up by the founding generation to, a business that has had the next generation working within it. And then as part of the, almost as a succession plan, bringing that next generation into directorship roles.
Part of that, entry into the directorship roles could well be the creation of a family business board and that’s made up of the newly appointed directors from that next generation with the founding generation taking on the senior role as chairperson of that board.
This can be quite a change, quite a shift from what has probably been dealt with round the kitchen table or dare I say in the bedroom..
This is a shift from what has probably been led by the founder and their spouse and discussions around the kitchen table or dare I say it in the bedroom! How romantic!
It is important to ensure that if you are putting a board in place to help with the continued growth and ‘professionalisation’ of the business that if a board is put in place that it is allowed to do what it is there to do.
With that in mind, let’s have a look at what the board is there to do.
What do family business boards do?
The purpose of family business boards is to ensure that the business is being operated as it should be and achieving what the shareholders, normally the family, would want it to achieve.
A functioning board will be holding regular meetings, these will be scheduled and will have prepared ‘board packs’ distributed before the meeting. This means that everyone attending the board meeting has access to the same information, is able to prepare properly for the meeting and be in a position to actively participate and if necessary, challenge the executive directors on what is in there.
The board packs would normally contain copies of all the key financial information and relevant briefing notes, plus anything else that is deemed important to cover at board level.
The frequency of board meetings will vary from family to family dependent on the size and complexity, it will also be dependent on whether there is a full-time management team dealing with the operational elements of the business.
If the operational side of things is being dealt with in this way, less frequent board meetings might be required and these can focus far more on the strategic side of things.
Another key role for the Board is to have sensible and structured debate. Every member of the board should be contributing to this through active listening and participation in discussions. It is important that the right environment is created to allow this to happen.
Some family businesses we work with comment that there is a dominant voice in the board room, and that board meetings are more akin to a moaning session, often from the business founder. This is to be avoided, if the board is to be effective.
If the board is either entirely or mostly made up of family members it is important to ensure that they are not just in that role by virtue of being a family member.
It might be the family’s intention to ensure that it is represented on the board, and this is fine, but if this is the case those individuals should bring value to the board and participate actively in the meetings.
Remember the family council is there to create the bridge between the board and the family and so the board is not the place to be expressing views of the wider family branches, it is there to focus on the successful operation of the business.
Given how important the board is you might want to consider some formal training or education for those either joining the board, or those on it already. In many successful and growing family businesses family members or senior employees who have been appointed to the board from within the business have grown their own skills in parallel with the growth in the business.
Formal directors training to ensure that board members understand the various financial, management and governance issues will help to make their lives easier and allow them to be more impactful in their role on the board.
Alongside that you may also want to consider formal induction programmes for board members.
The reason this might be sensible is that if a family member is being appointed to the board they will be doing so from a position where their awareness of the family business has come from their own family branch, be that their parents or other relatives that may not be currently serving within the business.
This inherited ‘dinner table’ knowledge may not be current, may not be entirely accurate and in the worst case scenario could be coloured by bad feeling within those family members.
A structured induction process would involve new directors shadowing key managers within the business, allowing them to observe the business directly, this works well alongside some formal introduction to the strategy of the business, an overview of current market conditions and the business plan helps create a cohesive board, which is what you want to help the business to succeed.
Is there an ideal size of board?
It has been suggested that that the ideal size for a medium sized business is to have 7 directors on the board, an odd number is often best so that deadlocks are avoided on voting matters, but the vast majority of family businesses boards will be made up of a mixture of the management team, both family and non-family supplemented by a mixture of family and non-executive directors.
Next weeks show will focus on non-executive directors so I won’t go into too much detail now but in essence the difference between an executive and non-executive director is that the non-executive director doesn’t have responsibility for the day to day management of the business, they are normally bought in for strategic reasons to add to the knowledge around the board table and perhaps expertise in the particular area. More on that next week.
As with a Family Council the role of Chairperson on a board is vital. They fulfil a different role to MD of the business in that they run the board whilst the MD runs the business.
The Chairperson has some key responsibilities, they obviously chair the meetings, they have responsibility for the recruitment to the board and the performance evaluation on the board.
They act as a figurehead and representative of the business and the point of contact between the board and the shareholders.
And, as we covered in the episode about Family Councils, they work closely with the chair of the family council.
So that has covered what the role of the board is and who sits on it, it is perhaps worth re-iterating that the purpose of the board is to create a forum where the strategic direction of the business is discussed amongst the executive and non-executive directors. It should be a forum for healthy debate, for challenges to be able to be made in a safe environment. For it to be effective it needs to be somewhere that views can be aired and questions can be asked.
What can sometimes happen is that a dominant character, often the chairman can take it upon themselves to overrule the board or attempt to run a dictatorship. As with everything that we have discussed in these episodes focussed on governance the intention is to make the relationship between the business and the business owning family a stronger one, with the right people talking about the right things at the right time.
The Board has a very important role to play in ensuring that the vision and purpose that the family have for the business is turned into reality.
As ever if I can be of any assistance to you, if you are approaching these things for the first time and would like some help or support, please do get in touch. My email address is firstname.lastname@example.org.