10 insights to reinforce the corporate governance of your family business

Truth be told, implementing and managing a board of directors in a family firm isn’t an easy task for a variety of reasons, including the unique nature of each family and company and its specific context and growth stage.

Through my years of experience working with family firms, I have gathered several practical insights to help them in this process:

1 – Thoroughly understand the board’s roles and requirements
The decision to create and develop a board of directors should be based on a solid understanding of its functions and requirements, not simply to follow the latest trends. It entails decision-making founded on accountability, fairness and transparency.

Family owners delegate the company’s governance to the board, which is accountable to them for its decisions and management.

2 – Aim for consensus but put matters to a vote
It’s important not to confuse consensus with across-the-board agreement. Sometimes decisions must be submitted to a vote, and consensus implies graciously accepting the stance of the majority while rejecting blackballing tactics and other negative power ploys.

3 – Prepare the terrain
Develop preliminary roll-out stages to gain reliable and rigorous reporting for the control and follow-up stages. Remember that the board of directors isn’t a steering commitment, so don’t try to control everything that can be controlled, only what is relevant.

4 – Long-term vision 
Encourage strategic thinking and dynamic debate to map out the company’s future, with a broad perspective and wide-angled lens. Owner families must clearly transmit the firm’s mission and vision so the board can validate and develop business strategies within this framework.

5 – Define a set agenda
The board should analyze, debate and decide on the most significant issues, without hidden agendas. It’s critical to establish and communicate a decision-making system among the company’s leadership team, board of directors and shareholders.

In many family firms, family members hold overlapping roles in the ownership and management realms, which can cause confusion when it comes to making certain decisions and the people who should make them.

 6 – Facts and data
Decisions should be centered on objective facts and data, not solely on emotions and traditions. Naturally, the owner family’s values should be integrated as corporate values and guide the board’s decisions and actions, as well as the board itself.

That said, it’s important not to confuse them with criteria, facts and related information that are divorced from reality.

7 – Meritocracy
Avoid using the board of directors to accommodate family members who seek the spotlight without the requisite abilities and experiences to add value.

The board of directors oversees the company’s top decision-maker and executive cadre, which is why its leadership by example and professional support are critical.

8 – No shortcuts
Avoid the temptation of converting the board into a training ground by integrating inexperienced young family members too soon as a means of “showing them the ropes.”

This can lead to competitive stand-offs with veteran members, undermining their development. Similarly, be wary of the “you have a voice but not a vote” options, which can also backfire.

9 – Accept discrepancies
Incorporate non-family directors based on meritocracy and independence, not merely because of personal ties and greater ease in decision-making processes. A non-family board member should challenge the board, not act as a yes-person.

10 – Separate business from family
Entrepreneurial families should have a rules-based family council to manage emotional issues and interpersonal relationships among its members to avoid shifting these problems to the company and board.

At the same time, it’s crucial not to turn the family council into a “shadow board of directors.”

In my collaborations with top-tier leaders of family firms,  some have asked if their business is too small for a board of directors. My answer is always the same: unless you implement a strong governance system, your company might always remain small.

Companies with robust and efficient governance models are also better able to inspire and engage family shareholders. The board of directors helps and reinforces the company’s leadership team in its decision-making process, promoting its long-term growth and sustainability.

And above all, I advise patience and resolve to implement this fundamental system as soon as possible.

Homepage image:
Danielle Cerullo · Unsplash