Let Some Outsiders Govern the Family Business
BY Ralph Ward
A productive, tough-minded, independent board of directors is just the ticket for many family-owned businesses -- but unfortunately few ever get one. "It's almost boilerplate advice for a consultant to tell a family business to add outside directors," observes Scott Friedman of Lippes Silverstein Mathias & Wexler, a law firm in Buffalo, N.Y. "But it still rarely happens."
This is unfortunate, too, because family businesses have a very high mortality rate after the transition from one generation to the next, most often because no one can supply the objective business savvy offered by a good board.
If yours is a family business, consider these benefits of adding outside board talent.
You'll gain an "honest broker." It may be better to say a disinterested broker. When cousins, siblings, and insiders make up the board, it's impossible to sort out ideas good for the business versus those good for this faction or that faction. An independent outsider has no agenda or prejudices and can view options from outside the gene pool.
Succession planning will be more equitable. Deciding who is next in line is an even muddier process. A child of the founder who built a career outside the firm may well be valued under one who has loyally stuck with the company for years, even though the "prodigal" gained broader experience and shows more promise. An outside board member can make this tough call, often saying aloud what the family members know in their hearts.
You'll broaden the company's options. An independent outside member brings new contacts and new ideas to a boardroom that may have been an inbred family picnic.
Despite these benefits, family-run companies are still unlikely to consider adding outsiders, even after it becomes a matter of literal company life and death. Here are some ideas for easing into the process.
Add nonfamily managers to the board. This is a very tentative move forward, and it's already common at many family firms. While it is better than the purely family board, this approach tends to reward insiders who are safely in the orbit of the current chairman. If used as a way to give your nonfamily talent a step up, it can turn them into family pawns in a no-win battle.
Form a "nonboard" board. Consider forming a "family counsel" of family members with an interest in the business who are not on the board, but who seek a voice in affairs. This broadens input and can relieve stresses caused by very narrowly held stock. An even better move is for the chairman to develop an outside "board of advisers." These should be the respected, proven independent business achievers you'd want on a corporate board, but serving in a strictly advisory capacity. Pay them a modest retainer, meet like a regular board, and avoid cronies or insiders. Pick people who'll give you blunt, informed advice, and whom you respect.
Add a worthy independent to your board. Ready for the plunge? Find a proven business achiever who has succeeded with a company larger than your own, and nominate him or her to your board. Look for an independent director who can help grow your firm to its next level and whom all current family members will have to respect, even when they disagree.