In many family businesses, the main shareholders also serve on the board of directors.
It makes sense. They know the company’s history, bring the owners’ perspective, feel personally invested in the business and have a clear interest in its continuity.
But being logical doesn’t mean being free of risk. In this article, we’ll examine both sides of the coin.
The benefits when owners sit on the board
A concentrated ownership base that is well represented on the board can be a major advantage.
It gives company leaders firsthand knowledge of shareholder expectations: their desired growth, their acceptable level of risk, their preferred dividend policy or the importance they give to keeping the company independent.
It can also bring something especially valuable in a family business: a long-term perspective.
When owners share a vision and a common commitment about the company’s future, the board has a more robust framework for making decisions.
It doesn’t need to constantly ask what shareholders expect because they are directly involved in the conversation.
The proximity of owners can also help preserve the character of the company: core values, approaches and principles that ground its identity and are rarely fully captured by strategic plans.
While the duality in owner-board member roles has clear advantages, it also has its downside.
The risks when owner and board member roles overlap
Being an owner does not automatically make someone a good board member. And sitting on the board does not authorize someone to intervene in the firm’s day-to-day management.
The shareholder makes decisions as an owner. The board member works in the company’s interest and contributes to board decisions. The general manager oversees the firm’s daily operations.
When the same person holds two or three of these roles, they need to know precisely which one they are speaking from at any given moment.
An overly dominant ownership presence can also create another risk: that the board loses its capacity to challenge decisions.
If major decisions reach the board practically already made by the main shareholders, the board can end up simply signing off on them. And a board that only rubber-stamps decisions adds little value.
There is also a less visible problem. As the family grows, the number of shareholders who don’t work at the company or sit on the board also tends to grow.
In this context, owners “on the inside” have far more information, influence and proximity to the business than owners “on the outside.” If this gap isn’t managed well, it can breed distrust.
So perhaps the question isn’t whether owners should sit on the board. A more useful question would be:
What value do owners add as board members, and how can the board preserve its independence from them?
A family business needs committed owners. It also needs good board members. And precisely because both roles matter, they should not be confused.
Homepage image: Vlada Karpovich