A balanced Board in a Family Business

How to ‘divide and rule’ both the family and the business so that both may prosper is a challenge many families face. Many family business founders will not accept the notion that assistance from outside talented directors can contribute to the growth potential of the family business. They may also not want to recognize the skills gap on their board and may think that their board is already balanced. Sometimes they do not realize that an independent board of directors is important for the long term sustainability of their business. In such cases there is a significant overlap between the family needs and the business objectives, and it gets blurred like in the picture above!

This may be because the founders thinks that they grew the business themselves and anyone else should first understand the nuts and bolts before venturing into their business. This argument is also fundamentally flawed, because if the founders want directors who have the same or similar knowledge as the founder, then how can they bring “new” ideas? Also the purpose of having professional management is to get the right skills and knowledge to address the business objectives.

Another issue is that family members treat the board room as their personal fiefdom and do not want outsiders to tell them what to do. Some may even interpret listening to outside directors as incompetence on their part. Others may fear being challenged or having to justify their decisions to outsiders. A few other families may worry about sharing confidential information or family issues with others. Family boards may not be used to corporate governance practices and transparency. Sometimes decision are made on emotions and gut-feel. It may also be a problem of family members being held accountable by a balanced and independent board. The ego of individual family members who may not get a board seat needs to be tempered so that it doesn’t result in suboptimal behaviors.

Families need to get over their insecure feeling and invest in bringing new talent to the business. They can stress on the importance of – confidentiality and respect for family values. They can implement a screening process to select trustworthy directors. They can also nominate mature directors who can respect the family culture but are independent to bring to bear their expertise and judgements. However, to make this a success, the founder or the head of the family business should be ready to accept a reduction in power and willing to encourage greater transparency for informed decision making.

About surenraj

“Views expressed are my own”
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