Institutional configuration in family firms: the board of directors

Like all companies, family-owned businesses require initiative, power and financial resources in order to excel. For those that aspire to transition from firm to institution, however, additional structures and processes are needed.

While no one is immortal, institutions are born to transcend generations. They don’t depend on the will or whims of one specific person to make important decisions. For better or worse, institutional decisions follow an explicit formal process that typically entails several people.

Some think this decision-making framework hinders organizational agility. While this view is likely true, it’s important to strike the right balance between speed and the risk of someone mistaking their personal preference for what’s best for the company.

“While no one is immortal, institutions are born to transcend generations.”

The leaders of successful family firms have unique professional qualities and perspectives that often die with them. By establishing a solid framework of structures and processes – starting with the creation of a board of directors – family businesses can ensure their long-term continuity beyond the lifetime of the company founder.

So when is the best time to set up a board of directors? The answer is clear: as soon as possible although some company founders are reticent to take this step. Sometimes it’s more a lack of awareness than of willingness, especially in the case of company founders who have built successful ventures from the ground up.

“It is not uncommon for people who have built successful ventures to dismiss the need for a board of directors. Despite their reticence, the need still exists.”  

Despite their reticence, the need still exists. Boards of directors of family firms play a critical role for several reasons, especially in situations like these:

  • When family interference impedes the company’s smooth operations
  • When roles and day-to-day management require clarity, especially in terms of the firm’s long-term strategic outlook
  • When there are too many owners to adeptly manage and control the company on their own
  • When you want to keep the business in the family and simultaneously grow with solvency
  • When the line between personal and corporate roles and functions begin to blur
  • When the owners’ criteria – at one time, innovative – no longer suffice to revitalize the company’s strategic direction and/or when they get tired of thinking alone.

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