Board of Directors | Family Legacies

FAMILY BUSINESS BOARD OF DIRECTORS

A Board of Directors is a group of individuals who are either elected or appointed by the family shareholders to represent the shareholders' interests and ensure that the company's management acts on their behalf. The Board of Directors' key purpose is to ensure the company's prosperity by collectively directing the company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders. In addition to business and financial issues, boards of directors must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics.

A family-owned business is not required by legislation to have a Board of Directors, however many family businesses are large enough to warrant a Board.

The benefits to a family business of having an active board of directors, which includes a good balance of independent directors are numerous, to include a few:

PLANNING FOR MANAGEMENT SUCCESSION

THE BOARD AS INSURANCE POLICY

A critical role for the family business board is as an insurance policy for the business owner's spouse and family in the event of a succession crises, the death or disability of the owner-manager, with no well-prepared successor.

AID IN TIMELY SUCCESSION PLANNING

A board can be instrumental in raising the importance of having a succession plan in place at the proper time. Typically, that is several years before the CEO's planned retirement, and often before he or she even recognises the need.

HELPING THE BUSINESS OWNER EXAMINE THE OPTIONS

For some business owners, weighing the leadership alternatives for the next generation can raise some major and confusing questions. Should this company stay a family business? What strengths are needed in my successor, based on the business's future strategic challenges? Who is available to succeed me? Are my children capable to take over? Should I want them to? If so, how can I select among them?

HELP IN SETTLING THE SUCCESSION PROCESS

A smooth management transition does not happen overnight. "Succession is not an event. It’s a process," says one CEO. "Ours started ten years ago and will take three more years." The process requires careful planning and preparation.

HELP IN PREPARING THE SUCCESSOR

Once a decision is made, independent directors can be invaluable in helping prepare the successor for the top job. The board can keep an objective eye on the learning opportunities afforded a successor.

MONITORING THE FINAL STAGES

The final stages of succession can be the most difficult. Many business owners have a hard time letting go. Yet it is almost impossible for a successor to say, "You're getting too involved. You're second-guessing me too much," or, "You should be working through me, dad, instead of going around me all the time." Sometimes, independent directors can help the founder step back.

HELP WITH ORGANISATIONAL SUCCESSION

An aspect of succession that is often neglected is organisational succession: the changes that new leadership will bring throughout the company. Independent directors can help business owners plan for organisational succession, attending to the company's future as well as to the needs of all its stakeholders.

ASSISTING WITH OTHER FAMILY BUSINESS MATTERS

FINANCIAL MATTERS

Even the closest-knit family can fray under the financial pressures raised by business ownership. Compensation of family members working in the business, dividend policy, valuation of the company, benefits and perks for family members - all are issues that can fragment a family.

SUCCESSOR AND SIBLING EVALUATION

Evaluating the successor or other family members in the business can raise all kinds of conflicts for the family business owner. In some cases, business owners may struggle endlessly with the important personnel decisions because of problems in assessing family members' abilities objectively.

The benefits of an active independent board of directors are numerous and the foundations of family business planning: the strategic plan, to ensure the business's future health; the succession plan, to assure orderly leadership change; the estate or personal financial plan, to provide for the business owner's future financial security; and the family plan, an overarching statement of the family's philosophy or mission that weaves together elements of all of the other plans.

WHAT EXACTLY DOES THE BOARD OF DIRECTORS DO?

The role of the Board of Directors can vary from one family business to another. In addition to numerous decision-making responsibilities, a family business Board of Directors is usually responsible for: