Robust corporate governance systems in family firms shouldn’t be any different than those in well-managed non-family firms – at least in theory.
In practice, it’s another story.
Boards of directors in family businesses have adjacent psychological and psychosocial dimensions, and disregarding these dynamics can easily lead to tensions among board members.
During my tenure as the holder of the Chair of Family-Owned Business, I coined the term P-BOD-MO, an acronym for a “professional board of directors in its modus operandi”.
To be honest, I had grown tired of “professionalizing the board of directors” being conflated with the integration of external board directors.
Please note that I’m using the term external and not independent since a board member’s independence can be directly influenced by the psychological and psychosocial aspects mentioned earlier.
External directors may–or may not–be independent, and it’s not a question of how much they’re paid as some people believe. As I’ll address in a future article, it’s far more complex and multidimensional than that.
Today my focus is on the eight components of a P-BOD-MO.
8 pillars of a P-BOD
In a family-owned company, a professional board of directors must be able to effectively perform the following eight functions:
1 – Help the owners stand firm on decisions that serve the company’s best interests, ensuring that internal family pressures don’t undermine its best interests.
2 – Understand the owner family’s relationship with the company to ensure family employees and/or owners are guided by a sense of responsibility and, in parallel, are treated fairly within the organization.
3 – Coordinate the proper functions of the firm’s board of directors and family governance structures.
4 – Foster a climate of trust and transparency.
5 – Promote a culture of friendly dissent where people can “agree to disagree.”
6 – Play numerous roles within a flexible framework.
7 – Ensure each and every member is held accountable for their actions.
8 – Regularly evaluate board performance with the guidance of professional systems.
In the real world, family firms often confront obstacles when to comes to adopting the practices and dynamics of a professional board of directors.
Without a doubt, the tallest hurdle is this: founding owners who know everything, do everything better, and have zero tolerance for anyone who contradicts or second-guesses their opinions.
In many cases, they discovered a business formula that worked well in the past, without considering that the future is moving in a radically different direction.
Another common trait is their lack of clarity and separation between the firm’s management and governance.
And if they happen to be “legends in their own time,” things get a whole lot worse.