Creating an independent board of directors probably is the most important move a family business can make on its journey to growth and success.
But it truly must be independent in that the board cannot consist of just family members.
Developing and hiring a board of directors is the second step in family business governance.
As previously noted, developing an owner's council is the first step. The owner's council is composed of members of the family ownership who lay out the goals of the family to the board of directors as it relates to business and brand performance. The role of the board of directors, meanwhile, is to carry out the goals of the family ownership by holding the company's executive team accountable to deliver results.
Many family businesses find it difficult letting “outside people in” and worry they will lose control. But, if you want to grow, you need to bring talent to the game to win.
This is where a board can make a tremendous difference. Besides, control isn't what it's cracked up to be.
The ideal board member is one whose expertise fills a gap in the needs of the business.
If you need business development, bring on a board member who has built a national sales team. If you need financial expertise, bring on a board member who has helped a company secure credit to expand.
Board members should supplement areas of the company that will help it be successful.
Here's another point often overlooked about a board – it attracts talent. A well-formed board is connected to the marketplace, knows how to attract and see talent and understands the company's success is based on talent.
The board typically focuses on the CEO, but will push the CEO on other executive talent if the team is not producing results. The board also provides advice and insight and challenges the CEO to think bigger.
A good board also knows its boundaries. Its goal is to build an executive team through the CEO who runs the company.
Directors are not looking for a second job. But they will hold the CEO accountable to results – deliver a strategic plan and deliver results based on the plan.
So, how do you develop your board?
“It is a very analytical process,” said Margaret Pederson, president and CEO of Amirexx LLC, a Connecticut-based consulting firm.
Company leaders, she said, should begin by analyzing the skills of existing board members, identify gaps and develop detailed specifications of the qualities needed in future board members.
A fully capable board of directors typically includes folks with the traditional backgrounds of industry expertise and general management, plus experts in areas such as sales, marketing, operations, finance, law and human resources.
Increasingly, boards for all types of companies and organizations also need strong skills in technology, risk, governance, innovation and international markets, Pederson said.
Armed with those specifications, the board's nominating committee — along with its executive recruiting partner — should focus on candidates with proven qualifications.
“Many people want to be considered for board positions when they are years away from being appropriate candidates,” Pederson said.
“People have asked me, 'Do I have to fully understand a P&L [profit and loss statement] to sit on the board?' They should have run a P&L before they join a board.”
Good candidates, experts say, should have more than impressive credentials and fancy titles.
They should be eager to actively participate in board work and leverage their expertise. They are seasoned leaders who have been where the company is going and can help point out risks and alternatives.
Family businesses are vital to our economy and can be the source of tremendous pride, personal fulfillment and wealth. They can also be a source of anxiety and frustration.
If your family business is looking to get to the next level, consider how governance can help.
Tom Garrity is managing partner of Compass Point Consulting LLC in Bethlehem. He is a certified coach with Gazelles International and a certified exit planning adviser with the Exit Planning Institute. Compass Point provides growth and business transition consulting to small- and medium-sized businesses. He can be reached at 610-336-0514 or firstname.lastname@example.org.