Family Business Governance and the Board – Some Prescriptions on Composing and Using the Board
While family businesses have conceivably been around ever since human beings started living in communities and began benefiting from gains of specialization and trading, the attention on family business governance as a formal topic is only about 25 years old. Prior to the formal recognition of family businesses as a distinct organizational form, governance has been thought of as an issue that is of importance primarily for non-family businesses, especially those where there is a separation of ownership from the management – for example, widely-held companies such as IBM, or Google. Blindly copying corporate governance prescriptions from non-family businesses, however, can actually do a lot of harm to family businesses. There are specific ways in which governance in family businesses is, and needs to be, different from governance of non-family businesses, for it to have a positive effect in family businesses. In this article, I define the key objective of family business governance. I then offer a few prescriptions to improve governance in family businesses.
So, what is the objective of family business governance? The key objective of family business governance is to help the family and the family leader find, create, develop, extract, and enshrine the “family magic” in the business. What is “family magic”? It consists of all the sources within the family that provide the business with a competitive advantage over a non-family business. If this magic does not exist, then the family business is no better than a non-family business, and therefore there is no advantage in keeping the business as a family business. The role of family business governance is to make sure that this magic is preserved and enhanced, for the sake of business survival, growth, and longevity, and to keep the business under family ownership, control, and influence for generations to come.
Now let me cover specific prescriptions of how to use a family business board, which is a major vehicle to execute governance. Here are five specific prescriptions for family business leaders:
1. Appoint board members who you trust a lot, and who are not afraid to disagree with you. “Disagreement” does not mean they have to openly fight with you, but they have to have a way to communicate alternative points of view with you, so that you are well-informed to take your decisions. Also, keep your board relatively small – no more than eight to 11 members. This size is good to keep the board members active and interested in the company, otherwise, they do not feel connected to you and your company.
2. The board must be accountable to the family business leader. This is different from corporate governance, where the board is legally accountable to investors, but not the leader of the company. All board members must understand that they have to constantly earn the trust and respect of the family business leader, otherwise, they should not be on the board. Only if the family business leader trusts the board will he/she listen to them, otherwise, the board will be useless.
3. The board must have a few “external” board members. “External” means that they are not family members, they could be former employees who have retired, or they could be family’s friends. Make sure that these members are also sufficiently different from each other. It is not a good idea to keep only “business associates” or “professional service providers” as external members, for example, because the board must be able to complement all areas and protect the blind sides of the leader.
4. The board must have direct access to the family. Only when the board knows the family well, will it be able to understand the family’s objectives, its development, the quality, hopes, and dreams of the next generation. This helps the board visualize objectively what could be the opportunities and threats for the business, and they are in a good position to provide more objective advice to the leader about the family and the business.
5. Create a productive culture in the board. Let the board know repeatedly that their contributions are valued. Remind them that they should bring up disagreements with your decisions to the board. Accept when your decisions have been wrong – this is hard to do, but if you do it a few times when you really feel you should have taken a different decision, it will empower the board to stand up to you. Of course, at any point, the final decision is always yours, but you need to hear alternative perspectives to ensure yourself that your final decision is indeed the best relative to other options.
By thinking about the functions of governance as preserving “family magic,” and by composing and using the board well, family leaders can ensure that they have more eyes and ears looking after the family’s and family business’ interests, which in turn ensures value-driven sustainability and development of both the family and the business.
Nenhum comentário foi deixado.