Installing professional governance in the family business helps take personal dynamics out of company decisions and strategic planning. Objective advice from independent board members can help prevent family disputes and ensure decisions are being made in the best interests of the business.

The majority-independent advisory board of Richmond Baking Co., based in Richmond, Ind., was honored as a Private Board of the Year in 2018. The awards, presented at the Private Company Governance Summit by Family Business, Directors & Boards and Private Company Director magazines, honor advisory and fiduciary boards for their high standards in governance and the success that governance has fostered.

Richmond Baking’s board guided the company through the unexpected passing of chairman Jim Quigg and led the company to becoming more efficient and profitable. Bill Quigg, Jim’s son, is the fourth-generation president of Richmond Baking, having taken over the business prior to his father’s death.

Todd Schurz, president and CEO of Schurz Communications, a fifth-generation family company based in Mishawaka, Ind., is the lead independent director on Herschend Enterprises’ fiduciary board. Herschend, based in Atlanta, is a third-generation family company that owns entertainment properties including Dollywood, The Harlem Globetrotters and Adventure Aquarium. Herschend has had an independent fiduciary board for decades and also has strong family governance in place.

We asked Quigg and Schurz, “How does having a board help with shareholder relations?”

Bill Quigg, president, Richmond Baking:

“The first thought that came to me was [that the board serves as] an intermediary. That quickly evolved into having an outsider perspective.

“Just providing a perspective that is not clouded by other potential conflicts, independent board members are helpful as it relates to family communication. I think it’s partially through communication and partially through [board members’] experience to deal with potential conflicts.”

Todd Schurz, lead independent director, Herschend Enterprises:

“I think there are responsibilities and duties revolving around governance accountability, transparency and offering sound advice and making sure that good processes are observed.

“In terms of the question, ‘What does a board offer shareholders?’ I think it gives you confidence, ensuring that the company is well-run.

“From what I’ve seen with Herschend, it’s a really talented, smart board. Conversations are engaging. I think this combination of management, family and independent directors gives shareholders confidence and comfort that their company is being well looked after.”

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact


On a snow day in 2012, when kids had the day off from school and people were encouraged to stay off the roads, Jeff Westphal, second-generation CEO of Vertex Inc., called his sisters and asked for a meeting that day.

Stevie Westphal Thompson and Amanda Westphal Radcliffe are co-owners with Jeff of Vertex Inc., a tax software company in King of Prussia, Pa. Worried that something might be wrong, the sisters braved the snow to meet their brother at a local restaurant.

Jeff had an announcement that couldn’t wait: He wanted to step down as chief executive, a position he had held since 1996.

He told his sisters he had taken the company as far as he could, creating divisions including Vertex SMB, tax software for small and medium-sized businesses. Now it was time to turn over leadership to someone with the skills to scale up the family firm.

“He said the decision was six years in the making,” says Amanda.

In late 2015, non-family member David DeStef­ano was announced as Jeff’s successor.

“Jeff is a visionary,” says Stevie. “He thinks 20 years out. As part of that, he realized his strength was vision and culture.”

Many families in the Westphals’ position would have chosen to sell their company, especially since no third-generation members were working at Vertex. The Westphals opted instead to keep the business in the family under non-family leadership and focus their attention on governance. In so doing, they continued on the path they had forged in 2000 when they bought Vertex from their father and decided to professionalize the business.

From print manuals to cloud-based solutions
Ray Westphal, the siblings’ father, founded Vertex in 1978. The company provided businesses with paper copies of sales tax manuals that included information on jurisdictions, rules and rates. Ray’s wife, Antoinette Westphal, became his first employee, managing the books and serving as secretary. Jeff, Stevie and Amanda helped as kids, walking around the dining room table to collate rate cards. They particularly enjoyed using the shrink-wrapping machine.

The company grew as its products and services changed with the times. Today Vertex develops and distributes tax software for businesses, as well as cloud-based solutions and instant updates. Its products help companies manage sales, property, payroll and real estate taxes in the U.S.’s 11,000 tax jurisdictions.

All three of Ray’s children worked at Vertex in the 1990s. Jeff, now 56, became president in 1996 and took over the CEO role after the second generation bought the business in 2000.

Before the generational transition, the board consisted of Ray and Antoinette, their three children, and their family and corporate attorneys. The new owners wanted to make a change.

Building an independent board
After acquiring the company, the siblings started to search for independent directors. Their father left the board after the ownership transition. Their mother passed away from breast cancer in 2004.

Jeff is chairman of the board. Stevie and Amanda, who like Jeff have left their positions at the company, serve as directors.

“It was challenging to be [both] an employee and a board member,” says Amanda, 50.

The Westphals recruited large-cap board members to their mid-cap company, compensating them at a large-cap level.

Rich Teerlink joined the board in 2002, soon after retiring as chairman and CEO of Harley Davidson. Teerlink retired from the Vertex board in 2015 but remains a mentor to Jeff and an adviser to the board. Jeff credits Teerlink with helping him with the transition out of day-to-day leadership.

Today three independent directors serve on the Vertex board. Terry Kyle, the former SVP and CFO of Shared Medical Systems, helped take that company public and led the team that negotiated its sale to Siemens in 2000. Ric Andersen, a partner at Peak Equity, a Philadelphia-based private equity firm, has more than 25 years of consulting and management experience at IBM and PwC. Kevin Robert is the former global CEO of Wolters Kluwer Tax & Accounting. DeStefano, the CEO, also serves on the board.

Vertex’s board structure enables the three family directors to be outvoted by the three independent directors plus DeStefano.

The board has brought continuity and objectivity to company decisions.

“The initiative from the beginning was to do what we thought was best practice,” Jeff says. “Families bring family stuff, and you can’t take the family stuff out of yourself. We wanted truly objective directors.”

Amanda, who serves on the board’s nominating and governance committee, says the current structure helps avoid role confusion.

“Now that we don’t have a family member in an operational leadership role,” she says, “the various governing responsibilities are more clearly delinated between the voting shareholders, board of directors and ­management.”

Transition to non-family leadership
The independent directors helped the family and the company prepare for succession to a non-family member. With the mentorship of the board, Jeff had put the company in a strategic position that would enable it to succeed without family at the helm.

The company hired recruiting firm Spencer Stuart to conduct the CEO search. Together, the search firm and the board developed a five-year plan for the transition and began the process of evaluating senior leadership at the company.
“We were looking for a potential successor, but also wanted to work on executive development,” says Stevie, 55.

Spencer Stuart confirmed what the family already knew: They had a number of strong executives in place.

The field was narrowed to about four, and DeStefano pulled away from the pack. He joined the company as CFO in 1999 and then became executive vice president. He was elevated to president in January 2016 while Jeff remained CEO.

This trajectory was deliberate. “There was a transition so I could get my wings,” DeStefano says.

Stevie notes that when Ray retired, he “stepped down and away.” Having DeStefano work alongside Jeff would enable the non-family executive to grow into leadership. The gradual transition also helped reassure employees about continuity of the business.

“Jeff found opportunities for me to be the voice on company issues” during the transition, DeStefano says. In January 2017, DeStefano took over as CEO of Vertex.

Family culture
The Westphals say values and culture hold an important place in the business. The second generation followed in the footsteps of their father, who treated employees with generosity and respect.

“A very long time ago I remember an employee telling me how they had seen my parents hugging and kissing each other in the company parking lot at the end of a long and difficult day, and how they truly cherished working for a company like that,” Amanda says.

So when the search for a non-family CEO began, it was important to keep that “culture of care” front and center. Amanda says that in DeStefano, they found a leader well equipped to foster that culture.

“David embraces everyone, too, with respect, strong ethics, humility, laughter and genuine care,” she says. “There are tangible competitive strengths to being a family-owned business, and leveraging an exceptional culture is paramount among them.”

When Ray led the business, he showed his appreciation to employees by giving them an extra paycheck at random when the company was doing well. The staff never knew it was coming, “which was fun!” Amanda says.

Now that Vertex has 950 employees, that’s become impractical. But the company continues to have an elaborate holiday party and give away tickets to local sporting events. Last year, during a Super Bowl rally party, the company held a surprise drawing. The prize was airfare, hotel accommodations and two tickets to the big game to cheer the hometown team, the Philadelphia Eagles, on to victory.

The company emphasizes transparency and shares information on strategy with employees. “We treat everybody the way we treat each other,” Amanda says.

These are some of the reasons Vertex has been named as a “Top Workplace” by the Philadelphia Inquirer and was one of Working Mother’s “100 Best Companies” in 2016. In 2015, Vertex received SmartCEO magazine’s Corporate Culture Award.

Employee retention is about 95%, the family says, and nearly 100% for executives.

“Only one in the top 30 executives has resigned to go somewhere else in 20 years,” Jeff says.

The plan for the family
It’s still unclear whether any of the third generation will play an active role in the family business. Their ages range from 18 to 31.

Some third-generation cousins have participated in the company’s internship program. There is a formal family employment policy, but none of the third generation has yet shown interest in working for Vertex full-time.

“There are some really diverse interests in that group,” says Stevie, 55. Those who have embarked on their careers include an artist, an Army helicopter pilot and a couple in finance positions.

To promote connections among family members and engagement with the business, the Westphal descendants established KAFCA (“Kick Ass Family Council Assembly”). The assembly meets twice a year.

While it’s unclear whether anyone from the family will lead the company in the future, preparations are being made for succession after DeStefano.

“We’re definitely starting to build out the next [succession] process,” DeStefano says.                          


The Larry H. Miller Group of Companies was founded with a single Toyota dealership Larry and his wife, Gail, bought in 1979. Today, the group consists of 80 companies with about 10,000 employees, generating revenues of more than $5 billion.

The family enterprise encompasses a fleet of dealerships, a car financing firm, movieplexes and a number of sports businesses, including an NBA team and the arena in which it plays.

Larry Miller, who had started his career selling cars for other dealerships, grew his company, as all successful businesspeople do, through hard work and dedication. He spent long hours in the office while Gail took care of their children: four boys — Greg, Roger, Steve and Bryan — and a girl, Karen. When Larry would come home at night, Gail would sit on the bathroom floor while he took a bath. He would download his day to her, often asking for her opinion or approval.

“I not only was collecting knowledge,” says Gail, 75. “I was a sounding board for him. He relied on me for common sense and my thoughts on the character of people.”

When the children started to lament the absence of their father, Gail made it a point to go to the dealership, pick up her husband for a family dinner out and then take him back to his office.

She says Larry missed a lot with their children and “ruled with an iron fist from afar.” She believes that as a result, they have chosen “to not be married to their jobs.”

Eldest son Greg Miller, 52, remembers when that first dealership was bought over lunch while the family was on vacation in Utah. The agreement was written on a napkin.

“The business, from my perspective, was such an integral part of my life that it would probably be impossible to unravel the relationship between my personal life and my business life,” he says.

As the Millers’ children grew up, they joined the company at the bottom and worked their way up. The sons started as “lot boys,” moving or washing cars for the dealerships. Karen worked in a dealership and at one of the financial services businesses. The sons were still working in the company years later when everything changed for the family and the business.

Larry was diagnosed with type 2 diabetes in the early 1990s. Gail says she tried to get him to slow down, but her husband saw no reason for it. He never seemed to recognize the danger of his ­illness.

In addition to a heart attack in 2008, Larry suffered “every complication you could have from diabetes,” Gail says. He died in 2009 at age 64.

“It’s a sad death, because I think his working so much caused [his illness] and then prevented him from caring for himself,” she says.

By this time, Greg had taken over as CEO. Gail says her husband thought he would make a full recovery from the heart attack and return to his post, but when the diabetes complications got serious (including a double leg amputation weeks before his death), that wasn’t to be. He started directing questions and decisions to his son.

When Larry knew he had only days left, he stopped dialysis treatments. Before leaving the hospital, Larry called in executives and formed an advisory board.

Larry died at home surrounded by his family.

Rapid growth
Today, Gail holds a controlling interest in the company, and her children are minority shareholders. Since 1979, the business has expanded on three main tracks: automotive sales, sports and entertainment, and finance and insurance.

Larry Miller Dealerships has grown to 65 locations in seven states. The business started providing financing for auto loans to support the dealerships and then expanded to auto insurance, extended warranties and maintenance contracts.

A somewhat surprising addition is Larry H. Miller Sports & Entertainment. In 1985, Larry and Gail bought a stake in the Utah Jazz basketball team (see sidebar). After they acquired 100% of the Jazz in 1986, they realized they needed to build a new arena to sustain the team and its growth.

The company purchased a triple-A baseball team, the Salt Lake Bees, in 2003 after the founding owner died. In 2015, the Utah Jazz bought the Idaho Stampede, a minor league basketball team. They moved the team to Utah and renamed it the Salt Lake City Stars.

Larry H. Miller Sports & Entertainment also owns the Tour of Utah bicycle race, one of the few American bike races with Union Cycliste Internationale (cycling’s highest governing body) classification.

The company launched Jazz Gaming in May 2018 as an NBA e-sports team that plays 5v5 basketball games digitally.

The company also owns The Zone Sports Network, a pair of local radio stations that air local games, including those played by the Jazz and the Salt Lake Bees, and Saxton Horne, an advertising and marketing firm that works for all the Larry H. Miller companies, in addition to other clients.

Rounding out the enterprise is the Larry H. Miller Management Corporation, Larry H. Miller Real Estate and Jordan Commons, home to a 10-story office tower, theater and events complex.

Read more about the Larry H. Miller Group of Companies and the family behind it

Buying the Utah Jazz was a slam dunk

Prioritizing education for the succeeding generation

About half these companies have been acquired or founded since Larry’s death, doubling the group’s employees and earnings. The company, which will celebrate its 40th anniversary in 2019, continues to diversify and will continue to do so in the future, Gail says.

The road to good governance
This year the Larry H. Miller Group of Companies’ board of directors was honored as a Private Company Board of the Year at the Private Company Governance Summit, hosted by Family Business, Directors & Boards and Private Company Director magazines. The company’s fiduciary board has been in place for two-and-a-half years, but the building of the board took much longer.

Shortly after Larry’s death nearly 10 years ago, Gail worked to get up to speed with the company. On Larry’s desk she found a note that read, “Need to organize an independent board of directors.”

Gail recognized that the company needed additional management and guidance beyond the advisory board Larry established. She went to his childhood friend Dennis Haslam for guidance. Haslam was a lawyer who served as outside counsel to Larry and had been president of the Jazz from 1997 until he semi-retired in 2007.

“Larry said, ‘If you ever need help, call Denny,’ ” Gail recalls. The two started to research the nuts and bolts of forming a board. Haslam enlisted the help of the National Association of Corporate Directors, and the group sent representatives to help Haslam and Gail determine what qualities they would need in directors, what founding documentation was necessary and what committees would best serve the work of the board.

“It was a five-year process, with actually working on the board for half of that,” Gail says. “Now [the board is] learning about each other.”

Gail serves as chair, and Greg, Steve and Bryan currently sit on the board. Current CEO Clark Whitworth and Haslam also hold board seats, and there are six independent directors. The Miller sons each represent the family on board committees.

At first, the family, and some executives, had reservations about an independent board overseeing the business.
“We’ve been a very successful closely held company,” Gail says. “Having people from the outside coming in and telling us how to do something is very difficult, but you don’t know what you don’t know until you get into that situation.

“There will be a point when I’m not going to be here [and] my kids aren’t going to be here.” Therefore, Gail says, it’s important to have an independent board and good governance practices to guide management and owners through succeeding generations.

All three of the Millers’ surviving sons; Carisa Krambule, the daughter of their second son, Roger, who died in an accident in 2013; daughter Karen Miller; and grandson Zane Miller (Karen’s son, who was raised by Larry and Gail and is considered part of the second generation) serve on the board of managers of the family’s private trust. According to the bylaws of that board, there will always be a blood descendant representing the line each of Gail’s children.

The 68-member family also has a family council. Once a month Gail hosts a gathering of the council at her home. There is also a family office.

Tension at the top
Around the time of the creation of the company’s fiduciary board, things became untenable for Greg Miller, who was CEO of the group. He had felt for some time that his mother, who was chair of the Larry H. Miller Group of Companies, wasn’t giving him the room to run the business.

Greg left the company in March 2015.

“There were three reasons that I stepped down,” he says.

“I’m kind of a free spirit and hadn’t had any direct experience reporting to a board. I was not excited about having 12 different bosses and all the bureaucracy that followed around that.

“I had other goals in my life that I wasn’t able to pursue because I was committed to running the family business. I chose to serve the family business.

“And the rift between my mom and I at the time. She’s the boss in that she’s the owner. There are certain arguments or contests that I’m never going to win if I’m going against the owner, and I learned that.”

Greg says he felt as if his hands were tied, and it hindered his ability to run the company. He notes that the business doubled its earnings and employees during his tenure.

“I [felt] like [I was] getting my job done as CEO and earning my paycheck,” he says. “The frustration got to where it was just unbearable.”

Gail sees the situation around Greg’s resignation as being more about Greg’s “intensity” in the role and his desire to leave and do other things. But she acknowledges she didn’t want to leave the business.

“I didn’t feel like I needed to hand over the reins,” says Gail. “I didn’t necessarily want to run the business. I could see [Greg] could do that very well.”

Rather than run the business herself, she says, she had projects she wanted to get done, and she wouldn’t step aside until they were complete. Her list included putting the board in place and establishing policies, a family office and an education program for the family.

Greg felt as if pressure was building. “Every single issue was an argument and a debate,” he says.

Greg says the first couple of years were “pretty sour,” but today relationships are on the road to recovery.

“The difference now is the compulsion we had to be in the same place, arguing the same issue, is mitigated because I removed myself,” he says.

When Greg stepped down, Gail turned to CFO Clark Whitworth, who had worked for the company for more than 25 years.

“It was a battlefield promotion,” Whitworth says. “They gave it to me and said, ‘Don’t screw it up.’ ”

Whitworth became CEO as the company was building its board. He says this didn’t lead to a huge change as much as “a maturing experience.”

“Our culture stayed intact,” he says. “I think we’ve done a good job to keep the family-business feel. We needed to know, What are the purposes of the governance [structures], and what is the relationship of the family to the business? [The board] gave us a nice structure under which to operate. Everybody knew where to go for what.”

Larry still looms large in the business, and the family plays a major role in the company, though there is no one currently in management. Several third-generation members work within the group, but it isn’t likely they’ll be ready to run the company in the near future.

“Would the family be pleased to have a family member in this role? Of course,” Whitworth says. As for the next one to step into his office, he says, “We’re definitely looking within the company. We still maintain that family cohesion. There’s some pretty good talent in this organization.”

It might be 10 years before a Miller heir is ready to lead, Greg says. In the meantime, the company plan is that a family member will hold either the CEO or chair position. The family could hold both, but will always serve in at least one of the posts.

The second generation has moved out of positions in the company that would require them to report to Whitworth.

Greg is currently the Jazz’s representative to the NBA. He also owns and operates the Land Cruiser Heritage Museum, which includes more than 70 models of Toyota Land Cruisers as well as Land Cruiser memorabilia.
Steve, 47, is the manager of the family’s ranch, runs the Tour of Utah and is in charge of special projects, like the remodeling of the Jazz’s arena.

Bryan, 40, is now the steward of the “people and culture committee” for the group of companies. He heads up the “Who We Are” program, which encompasses the mission, vision, values and goals of the company and family.

Karen, 45, sits on the family foundation board in addition to the board of managers of the private trust.

Service and stewardship
On the anniversary of Larry’s death, the family and employees from across the companies use the day to discuss four main values of “Who We Are”: hard work, integrity, service and stewardship. “We train our people about who Larry was and what we stand for,” Gail says.

The Miller family encourages employees and family to serve the community. Service aligns with their values and their Mormon faith.

During his lifetime, Larry did a lot of public speaking. While Gail had often stood on the sidelines, she found her voice after Larry’s death.

“He spoke to the community, invested in youth and business. He could help kids learn how to get into business,” she says. “He knew a lot, he did a lot.

“I wanted to continue that legacy. I have a lot of interest in helping in the community with homelessness and supporting schools. I’m also on a suicide task force.”

Gail has 37 grandchildren, seven step-grandchildren and 19 great-grandchildren, with further growth anticipated in the third and fourth generations.

Gail encourages her grandchildren and great-grandchildren to be generous. Each child age 12 and older is given the opportunity to choose a charity and give $5,000 to that organization annually. It is the child’s responsibility to find the charity, vet the reason for its need and make a report to the family. Gail says this is a relatively new program that hasn’t had a lot of use, but “they’re learning.”

Past contributions were made to organizations that include Bridle of Hope, a program that uses horses as therapy for women and children who have suffered abuse; a dog rescue organization; and a program that keeps hiking trails clean and mountain climbing viable.

Grooming the NextGen
Succession wasn’t something Larry spent a lot of time on, and it’s something that has become a focus of the board of directors.

“It comes up every meeting,” Greg says. “ ‘What are our options? Who are our candidates?’

“There’s not a single name we could say, ‘That’s a no-brainer, that’s a clear-cut winner.’ We’re 60-70% there; we’ll get one.

“When the day comes, we’ll make a decision and do the right thing.”

The Millers hope a third-generation family member will work hard to be ready to take the helm in the future. Greg says the family needs to encourage this by rewarding the hard workers who are coming up now.

“To me, we just need to acknowledge that good things come to people with sustain high performance — like an NBA player who gets the shot every time,” he says. “The same principle should apply in the workplace.”

He says being part of the family entitles members to certain benefits, whether or not they grow the business, but “you need to reward those who make good things happen,” and not just give underperformers a pass because of their lineage.

To foster a successful transition to the third generation, Gail has installed an elaborate education program for the family (see sidebar). She is optimistic.

“I see the family continuing to grow,” Gail says. “We’ve had three new babies this year. I see the family becoming more educated, more invested in the business, more functional as a family, as a collegial group. It’s hard to lose the patriarch. We’ve learned that it’s OK to make decisions without him.”   

Copyright 2018 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact



During the credit crisis of the last decade, John C.L. Darby, like many real estate developers, had his share of sit-downs with jittery lenders.

But while other developers recount stories of painful reckonings with bankers during the worst housing downturn since the Great Depression, Darby, 55, noticed lenders seemed to breathe a bit easier when he told them how his family business is governed. “You could see their facial expressions change,” Darby says.

The Beach Company of Charleston, S.C., founded in 1945, today is run by a seven-member board of directors. Only two seats are held by family members. The other five are held by outside directors with real estate expertise. The chairman and CEO positions are separate: Darby serves as CEO while his uncle, Charles S. Way Jr., 79, is chairman.

Darby believes the creation of an independent board in the late 1990s was one key reason the company survived the Great Recession from late 2007 to June 2009.

“The bankers clearly appreciated the fact that the company was not just the family piggy bank,” says CFO J. Darryl Reyna, 66, who has been with the organization since 1994. “They could see it was a professional business.”

Having weathered the recession, the fourth-generation real estate business is “a helluva lot stronger” today, Way says. With approximately $1 billion in assets — including office, retail, industrial, multifamily and marina properties — The Beach Co. was 33rd in the 2016 edition of “The South Carolina 100,” Grant Thornton’s annual ranking of the state’s largest private companies. According to Grant Thornton’s list, the company generated between $100 million and $999 million in revenues

Forty-nine Darby and Way family members own the company, which employs about 300. But only six family members from three generations have jobs in the business.

“The chairman and CEO should give themselves a pat on the back. These are best practices,” says Justin Craig, professor of family enterprise at Northwestern University’s Kellogg School of Management.

When it comes to its core business of real estate, The Beach Co. is “pretty strategic in its thinking,” says Elaine Worzala, a professor of real estate at College of Charleston School of Business.

“They look forward and try to understand what the consumer wants,” she says. “They’re associated with staying on top of industry trends and trying to stay flexible to meet the market.”

A strong foundation
Darby says his parents’ generation (known as the G2s) is “part of the secret” to The Beach Co.’s success.

“The G2s worked hard at making sure the younger generations know the history, the purpose, the good times, the tough times,” Darby says. “If they weren’t so good at that, we’d be having a different conversation today.”

The company founder is a legend in South Carolina Lowcountry. John Charles (“J.C.”) Long, born in 1903, was known as an intrepid entrepreneur. He was not only a noted personal injury lawyer, but also a public servant and businessman. 

When he married Alberta Sottile in 1933, Long joined a prominent Charleston entrepreneurial clan. The couple had two daughters, Joyce and Mary Ellen.

Mary Ellen Way, 79, describes her mother as having a “very, very astute” head for business. Alberta Long had worked with her father, Albert Sottile, a Charleston theater builder and owner.

Grandchild Anne Darby Parker, 57, says of J.C. and Alberta, “They were a team.”

A turning point for the family came in 1945, when Long bought 1,300 acres on the Isle of Palms — most of the island —for $97,500. The Beach Co. was formed to make the purchase. Long’s vision was to build affordable homes for returning veterans. A one-bath model cost $11,750. Isle of Palms became a Charleston bedroom community as well as a vacation spot, according to the City of Isle of Palms website.

Mary Ellen Way says Isle of Palms was often discussed at the dining table. “I ate every meal with it growing up,” she says.

But Way says she and her sister, who spent nearly every summer on the island, “didn’t have any idea Daddy owned Isle of Palms.”

Sandy Ferencz, who serves on the Isle of Palms City Council, says the family is considered a Lowcountry dynasty that’s had an impact on Charleston’s landscape, politics and philanthropy. Other early Beach projects included suburban Charleston neighborhoods and downtown high-rise apartments.

“In my mind, they still maintain this attitude that this is their home,” Ferencz says.

Long’s son-in-law Charles Way, an attorney married to Mary Ellen, joined The Beach Co. in 1975. Over the years, Way transformed the company into a full-service real estate firm. Long died in 1984.

Long’s other daughter, Joyce, married Dr. Charles Darby Jr., a prominent pediatrician. The sisters, who each had five children, are very close — and that strong tie has been key to the continued success of the company, John Darby says. Many family members live near each other in Mount Pleasant on property Long bought in the 1950s.

“It’s like a family compound. The family cemetery is there,” Darby says.

In 1988, Way embarked on another marquee project when he led a group that bought the Kiawah Island development from the royal family of Kuwait for $105 million. The Beach Co. was the lead developer. The following year, Way asked Darby to join the company.

“I knew I wasn’t going to live forever. I better start grooming someone to take over,” Way says.

Darby, who had worked in banking, joined the company in 1990 and became CEO two years later.

“I didn’t appreciate it so much when I was younger, but my uncle worked his tail off to make me successful. It came from his heart; he wasn’t acting,” Darby says. “Now, I really appreciate what my uncle did.”

“I trust him [Darby] completely,” Way says.

Darby says he recognizes that not all family business leaders are supportive in training their successors as his uncle was. “This is how family businesses break down,” he says.

Way’s son, Leonard, is vice president of asset and property management.

The patriarch also did his part to convey the idea the business was a family legacy. When Long’s granddaughter Anne Parker became old enough to own company stock, Long treated it as a rite of passage, she says.

“He made me realize this was an important role,” says Parker, an artist who did a stint on the Beach board.

Avoiding family feuds
Not that there hasn’t been disagreement among Long’s extended family.

John Darby’s brother, Charles P. (“Buddy”) Darby III, made headlines in 2012 when he was sued by the descendants of J.C. Long’s brother over a portfolio of real estate entities with luxe holdings, including property on Kiawah Island and St. Kitts island in the Caribbean. The various entities did business as Kiawah Partners; Buddy Darby was chairman and CEO.

The Beach Co., which divested all its interest in Kiawah Island development in 1997, had no involvement in the lawsuit.

The suit alleged Buddy Darby attempted to “freeze out” the Long family members who were minority owners in Kiawah Partners’ entities. The plaintiffs, including J.C. Long’s great-nephew, Leonard Long, alleged there was no board to oversee Buddy Darby and he “refused to follow any basic governance methods.”

In 2012, Buddy Darby told the Post and Courier in Charleston: “It is a good thing my grandfather, J.C. Long, is not still around. He would be extremely disappointed in his grand-nephew Leonard’s action.” The case was settled and the business sold.

John Darby declines to discuss the case, calling it “painful.”

Presciently, The Beach Co. had put in the kind of strong governance methods that help family businesses avoid such feuds, says the Kellogg School’s Craig.

As families grow, it’s inevitable that members will have differing opinions about the purpose of the family business, Craig says. For some, disbursements are a priority, while others view the operation as a legacy asset. “The extreme diversity of viewpoints needs to be corralled,” Craig says. Outside directors perform that function, bringing independent thought and accountability, Craig says.

“These are smart people. They are very strategic in their thinking,” he says.

William G. Taylor, 61, who has served on the Beach board for a decade and is CEO of The Springs Co., a family business in Lancaster, S.C., says independent directors also bring dispassion. Darby notes that independent directors don’t get involved with family personalities.

“I have learned the ability to set aside emotions when making a big decision is critical to the success of a company,” Taylor says.

Striving for good governance
Despite the advantages of an independent board, it can be difficult to put one in place because family members must relinquish some control, Taylor says.

Darby says his family was ready for it. Having served as directors, family members understood the complexity of the business and the need for “the best-quality board members that we can find,” he says.

Mary Ellen Way says the family worked with an outside adviser in the 1990s and found it “a very, very positive experience” because it helped solidify the long-term goals of the family and company.

“The independent board allows us to do what’s best for the company and not necessarily what’s best for a particular family member,” Darby says. “It’s a long game.”

The board, which meets four times a year, has “full authority for the direction of the company,” Darby notes. Directors take their fiduciary duties seriously, and there are “very healthy debates on matters presented at the board table,” Taylor says.

“Good independent boards don’t always agree with management,” Taylor says. “If they do, it’s an indication management has recruited them to be ‘yes men.’ ”

The Beach Co. must greenlight all projects over a certain size, and management must demonstrate why the projects are viable. Directors approve the annual budget, strategic plan, distributions to shareholders and any employee benefit plans, among other things.

Total annual board compensation is about $150,000.

To keep the family informed, the board sends a letter to shareholders after meetings. One of the directors serves as a liaison with the family, allowing questions or concerns to be raised anonymously.

The annual meeting, held on a February weekend, brings out the family in force.

Looking ahead
Today, the company is developing a five-year strategic plan without an outside adviser. One of the board members chairs the strategic planning process, acting as a facilitator at the board level.

“Everyone in the company is involved,” Darby says.

To ensure ownership succession, every family member has done some estate planning. Company bylaws limit share ownership to lineal descendants. For leadership continuity, a management succession plan is under way.

No family member is guaranteed a job. There must be a legitimate opening, and the applicant must be qualified and have outside experience. The board approves family members in any management position.

“You have to bring value,” says Will Freeman, 32, a G4 at the company’s residential sales business. Freeman is Way’s grandson.
Darby sees the fourth generation as crucial to the future success of the company.

“They’re millennials, so they think a little differently. I don’t like going into a meeting without them now,” Darby says. “We talk openly about how they re-energized the company.

Going forward, he says, “They’ll be fun to watch.”     

Maureen Milford is a business writer based in Wilmington, Del.

Copyright 2018 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact



Our natural tendency is to surround ourselves with people whose backgrounds, experiences and viewpoints are similar to ours. But in order to achieve the true power of a board of directors, you must take a different approach when considering director candidates.

Boards hold management teams accountable for developing and executing a dynamic strategy. The strategy must be aligned with the values and needs of the family shareholders and must address the competitive challenges faced by the business.

Research has shown that boards make better decisions, leading to higher company performance, when they include independent members as well as directors who are diverse in terms of gender, ethnicity, skill sets and opinions.

Diverse boards are in the best position to help a family company with strategic planning, succession planning and managing family dynamics.

Here are some additional advantages of a diverse board.

• It provides greater objectivity and a wider variety of perspectives. Directors of wide-ranging backgrounds ask better questions and are more willing to challenge the prevailing view and offer new insights.

• It makes better decisions on behalf of all stakeholders.

• It eases the difficulty of working through sensitive issues that can divide a family, such as succession planning, executive compensation and dividends.

• It is better able to ensure that the needs of the family are met, the business strategy is optimal and the family’s interests are protected.

• It mentors the successor or next-generation leadership group and introduces them to role models and influential business leaders.

Despite these advantages, many business owners fill their boards with family and friends. Family members may become directors without understanding the role and its legal responsibilities. Many lack the knowledge and skills required to be an effective overseer of the company’s strategy.

Sometimes, family owners who work in the business dominate the board. When this happens, often the board fixates on day-to-day operations instead of focusing on strategy. Family owners who don’t work in the business may think their role as a director is to represent their family branch or their generation, overlooking their legal and fiduciary responsibilities to all shareholders of the company.

It’s also unwise to name your friends or advisers, or others who have a long-term relationship with the family, as directors. These individuals tend to be ingrained in the family culture and thus act more like insiders. They often are reluctant to challenge a strong CEO or family leader.

Boards with a preponderance of insiders or friends are highly susceptible to groupthink. The desire for harmony and conformity leads to flawed decision making. Members of these boards go along with the strongest voice in the room even though their gut tells them otherwise.

Things to consider when seeking board candidates
• Look for individuals you don’t currently have access to. You shouldn’t put your attorney, accountant or banker on your board; these people have a financial relationship with you and thus are not independent. It’s also not advisable to appoint a member of your YPO group to your board, since you already have access to YPOers at the group’s regular meetings.

• Find candidates with broad business skills and unique experience that will help you tackle current strategic challenges and those that are coming your way. For example, if your company will be going through a CEO transition or restructuring in the next five years, find someone who has led a company through that strategic challenge. If you are planning acquisitions, seek out someone who has had that kind of experience in business. Reach across industries to find candidates who have achieved goals similar to yours.

• Look for gender and ethnic diversity wherever possible.

• Business skills are important, but character and personality are also critical variables. A director may have all the right business skills, but if that person can’t work productively with other board members and management, and can’t challenge people’s thinking in a productive way, he or she could be a disruptive force and create distractions.

• When building a relationship with a candidate, assess his or her enthusiasm for and interest in both the business and the family. A candidate who is authentically excited and eager about the family and business can be more powerful than a candidate who is “a professional board member” or whose main selling point is that he or she would bring prestige to the board.

The role of the chairman
When thinking of board diversity, also consider the importance of the chairman’s role. An effective chairman encourages diversity of viewpoints and healthy debate.

Typically in family businesses, a family CEO becomes the chairman of the board upon his or her retirement. Many families are in favor of this because they have already established trust and know what to expect from this person. From the family’s perspective, the move from CEO to chairman represents a minimal change.

In other cases, a family member is selected as chairman based on the individual’s qualifications, career experience, track record and leadership skills. A family chairman can ensure that the family’s values and vision are represented in the business’s strategy and direction. Many families who plan to have a family chairman in perpetuity tend to be more willing to hire top non-family professionals to serve on the management team, rather than filling the C-suite with family members.

On the other hand, a family chairman who lacks the necessary qualifications or leadership skills can be disruptive. It’s tempting for a family chairman to pursue an agenda that serves the interest of his or her own family branch rather than the interests of all the shareholders.

Increasingly, we are seeing families elect non-family members to chair their boards. These non-family chairmen offer skill sets and experience not found inside the family pool and thus are better able to address the strategic challenges facing the family enterprise.

An independent chairman can critique a family CEO’s performance or personal style in an objective way. And a non-family chairman, who provides a third-party perspective during times of conflict, can help ease tensions and build bridges between family factions. Greater family unity results in stronger emotional connections to the business.

A non-family chairman must have the confidence and credibility to hold family managers accountable. The chairman must also be empathetic and understand family dynamics.

If you’ve decided it’s time to search for a non-family chairman, the first place to look might be within your current board. Your independent directors already understand your business and the competitive landscape, your strategic plan, your family and business history, and your family culture and relationships.

Things to consider when seeking a board chairman
• The chairman must have the skills to work with management and facilitate an effective board process.

• The chairman must be trusted by the family and by management.

• The chairman’s values must be aligned with the family’s values. For example, if the family is conservative and the chairman is a risk taker, friction is likely to result.

• The chairman must have the skills to foster family unity and cohesion.

• The chairman must have high emotional intelligence. He or she must understand the complexity inherent in all family enterprises and the dynamics of the specific family ownership group.

Objective viewpoints
In order to develop a strategy that will enable your business to last for generations, it’s essential to form a diverse, independent board. Directors who bring objective viewpoints and a broad range of skills and resources can greatly improve communication and decision making. They also can help develop family members for future leadership. The result will be better business performance, which will lead to a satisfied family ownership group.

The best time to tackle a challenging project like diversifying your board or removing an unproductive director is when things are going well in your business. The tough work a family does during the good times enables them to unite, persevere and prevail during the down times.                         

Jennifer Muntz is the executive director and Andrew Keyt is the president of Family Business Network-North America, the North American chapter of an international learning community for families with medium-sized to large businesses (

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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The board of directors of Samaritan Medical Center was honored as “Private Company Board of the Year” in its revenue category (less than $100 million) at the 2017 Private Company Governance Summit. Samaritan’s board was cited for its adoption of many public company best practices.

The 50-year-old family company owns and operates 18 medical office buildings in San Jose, Calif. The buildings sit on the site of a former ranch that is still owned by members of the founding families.

Samaritan has had a board of directors for 25 years, but the current generation went a step further, adding three independent members in 2008 and a fourth in 2016. Now the board consists of four family members and four independent members, including Richard Conniff, the chairman.

Conniff, one of Samaritan’s original independent directors, became chairman in 2016. Since then, significant achievements have been made, including the establishment of chartered committees within the board and the development of a 10-year strategic plan to expand the company’s holdings.

The board’s independent directors committee was established in 2016 to offer guidance on various matters concerning ownership. Other committees include the nominating committee, the compensation committee and the finance committee, made up entirely of independent members (save for the company’s family CEO).

Another important move that took a lot of work, says Samaritan’s CEO, David Henderson, was a 20-year campus master plan that included expansion and designating building purposes; it took two-and-a-half years from start to finish. The board of directors had experience with the process and helped Samaritan navigate community meetings and talks with the San Jose City Council. In the end, the council unanimously approved the plan.

Henderson says Samaritan’s independent board members have been instrumental in the company’s successes and have helped foster transparency in areas such as operations and compensation.

We asked Henderson and Conniff: How do independent directors help the family company?

David Henderson, family (married-in) CEO:

“There is not a singular type of project that needs an independent director. When we speak collectively, I sit there and go ‘Wow. The breadth and depth of what they’re offering is so much deeper and wider than what we can offer in the family.’ They are able to come into discussions without an agenda, like with family employment and compensation. In our case, for the most part, we have the outside directors deal with that, and they have been able to gain the support of the family members, because when Mom or Dad come into the conversation and there’s an unresolved conflict, that bleeds into the discussion. So I stay out of it.

“Independent directors also bring a freshness and independence to the conversations. Two of our members are former senior vice presidents of major healthcare systems; another is a retired healthcare consultant. The views they bring from being on the outside of the company get us to look at issues differently.”

Richard Conniff, independent chairman of the board:

“Independent board members can provide an objective point of view. They are not burdened or influenced by the ownership group or influenced by being an employee of the company. That’s the most important attribute they can bring to the table.

“This should be used very strategically, looking through the lens of an outside stakeholder to see how the company is viewed by the public from a different angle.

“I think in a family-owned business, particularly if that business has been around for a long time, [the family] may have tunnel vision of how the public may perceive the business. An outside director can tell a company very candidly how it’s viewed by the community it serves. I’ve seen those situations—the business has been around for a very long time, it’s a success in the eyes of the owners or multiple generations of the business, but they may have missed changes in the market and now the community views them differently.

“I think [independent directors] are a sounding board or adviser to the CEO of the company. Whether the CEO is an insider or outsider, it’s helpful to have a place to go to bounce ideas where they aren’t influenced by family members so much. It’s important for the CEO to have that resource. The balance of an outsider is valuable.”

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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Corporate governance. Yawn.

The words are long and drawn out—just like board meetings. You don't have time to sit in a boardroom. You've got production and sales to worry about, and you're down two customer service people. You're running a family business, not a multinational corporation. Governance takes care of itself, right?

If this is how you think about the leadership of your successful and fast-growing enterprise, rub the sleep out of your eyes and think again. Strong corporate governance in the private sector has become a critically important topic. While public company boards have a fiduciary responsibility to shareholders, private company boards can have a fiduciary or an advisory role. Still, the oversight responsibilities of private company boards are just as critical as those of public company boards. The board plays an especially important role in family-owned companies, which have the unique—sometimes difficult—dynamics of family relationships to contend with.

In my more than 30 years of investment banking for family companies large and small, I've seen just about everything. I've seen some very good companies fail because they didn't have a board and, as a result, lacked the insight and discipline that good governance provides. I've also seen good companies with boards flounder because the board didn't have a defined role, wasn't properly structured or was missing the skills needed to ensure long-term success. On the plus side, I've seen marginally performing companies improve and succeed because they established boards that understood their role, had the requisite skills and were staffed with experienced and candid outside directors who weren't afraid to tell the owner the truth.

Clearly, just having a board and setting up a façade of governance isn't enough. My experience, which includes service as a director of several family businesses, has shown me that there are several common elements to successful boards.

An explicit board charter

In order for a board to govern effectively, it must understand its responsibilities—the bounds of its governance—which must be clearly defined. It should also know its purpose, as defined by the business owners.

A board's most important responsibility is CEO accountability. While it may be difficult for family company owners to cede some of their power to a higher authority, the fact is that the most dynamic and highest performing CEOs want accountability in the form of a strong board. Why? Because they end up performing better!

A board charter—a formal document, even if it's in the form of a letter—should define specific accountability factors and how they will be measured. While opinions on many other topics will differ, as they should, effective boards look at accountability from the same perspective. Simply reviewing metrics isn't enough. Board members must understand their meaning and how to interpret them in the context of the company's strategy.

Another critical board responsibility is CEO succession. This is frequently the most difficult issue the board of a family company must face, often because the founder or sitting CEO doesn't want to do so. While family ownership could be the basis for establishing a solid line of succession, boards must be honest in assessing the talents of all potential management successors. Someone with the right last name isn't necessarily qualified to take the reins. This too should be outlined in the board charter so that everyone—the board, management and family members—understands that the stability and health of the enterprise are paramount.

Some companies have formal training programs to immerse their board members in their business. Many smaller companies don't, but some form of onboarding is important. While the board's role should be unfailingly strategic, board members with a solid understanding of the company's defining processes will have a context for contributing to strategic discussions.

Selecting and compensating board members

With an explicit board charter in place, the task turns to selecting board members. This process should be carefully thought through and documented.

Begin by setting terms for your board directors. Three years is a reasonable place to start. A three-year term provides ample time for a director to learn the business and make a solid contribution. It also offers the flexibility to bring in fresh directors if the board becomes stale or its culture goes awry. If things are going well (i.e., if there is vigorous discussion and healthy debate), members can be reappointed. Either way, directors know they don't have a lifetime appointment, which dovetails with expectations detailed in the board charter.

Create a qualification matrix that identifies the disciplines and expertise you feel are important, and that augment your own knowledge and capabilities. Use the matrix to arrive at candidates, applying priorities that are specific to your situation. For example, you might have a need for directors with experience in finance, marketing/branding, HR or IT.

While candidates from your industry may come to mind first, skilled individuals from other fields can offer fresh perspectives and wise insights. A diverse board will provide a broad range of viewpoints. People with prior board experience are highly desirable. It's generally a good idea to seek out those with experience on family company boards.

One of the biggest mistakes I've seen owners make is putting their cronies on the board. Childhood friends and college buddies make great golf, skiing and hunting partners, but as board members they generally leave a lot to be desired. It's better to engage independent directors—a majority of them, in fact—who can give unbiased advice.

Independent boards enable you to avoid the echo chamber phenomenon, in which your views are simply reinforced by people with allegiance to you. Strong boards seek to question your answers rather than answer your questions. Independent directors offer a window to the world outside your company.

When selecting board candidates, hold firmly to the matrix you created. You need people with specific expertise; select your directors for what they know rather than whom they know. It's easy to find people willing to sit on your board. But it's hard to find the right ones, which is where compensation comes in. Compensation should be neither the primary motivator nor a de-motivator for a prospective board candidate. If you overpay, you may attract people for the wrong reason or create a board of "coasters." If you underpay, you may be signaling that your directors' time and contributions are not valuable.

Gear the compensation package to your objectives. If you want directors thinking long-term and focusing on value creation, incorporate a long-term incentive component, which will align your directors' interests with those of the company and its owners.

A strong organizational structure

A strong board structure begins with a lead director, preferably someone from the outside. The lead director's responsibilities should be documented. They might include determining the composition of the board, recruiting other directors, setting board meeting agendas with the CEO, facilitating effective communication between ownership and the board, and conducting annual board evaluations.

In general, there are two types of board committees: (1) permanent standing committees to oversee specific areas that are critical to the company; and (2) ad hoc or special committees to address issues that are too complex to be handled in a full board setting.

In family company boards, standing committees often include HR/executive, investment/finance, compensation and marketing committees. Ad hoc committees might be formed if the company is considering a major expansion or diversification initiative, recruiting a C-suite executive, evaluating potential successors or addressing other short-term strategic issues.

Board committees assist the CEO by providing oversight and feedback and augmenting skillsets. Committees should be tailored to address the specific situation or need. For example, an electronic health records company might benefit from a standing IT committee. A venerable funeral services company might form an ad hoc committee to oversee new systems implementation.

Investment/finance committees typically focus on strategic financial issues, such as assessing financial processes, reviewing financing options and ensuring shareholder return on equity.

Audit functions, sometimes under the purview of the finance committee, generally include financial reporting, regulatory and legal compliance, operational efficiency, corporate policy and, increasingly, enterprise risk assessment and management. But auditing these areas and conducting a robust assessment of risk requires resources and ample investment. This type of investment is well justified in certain scenarios and industries and not in others. In either case, the audit function and risk management are highly appropriate strategic board discussion items, which should be addressed periodically.

A strong culture

It's often said these days that culture is king. In many cases, culture—more than a slick product or a new, highly efficient process—is what breeds employee satisfaction (or dissatisfaction) and is a principal component in a company's success (or failure). I agree—and the same notion extends to your board.

No doubt, the work of a board is serious stuff. Your board members are your "Knights of the Round Table," who protect your interests and ensure that growth benefits the entire enterprise. Still, board members are people, and for people to be enthusiastic and productive contributors, they must be engaged. There must be a healthy chemistry among board members. There should also be diversity.

The strongest boards I have seen promote engagement by addressing substantive issues and encouraging healthy debate. These boards don't just serve as sounding boards for the CEO but also provide a "safe zone" where the CEO can speak openly and express his or her aspirations, enthusiasm, frustrations and fears. Their toolbox includes much more than the proverbial rubber stamp.

To that point, the CEOs who installed these boards did so fearlessly. They weren't afraid of someone challenging their ideas. They were comfortable with the notion that outside perspectives and expertise wouldn't dilute their influence but would strengthen their ability to build an organization with a sense of purpose and permanence—something that would outlive them.

They slept well, too!

Brad Bulkley is the president and founder of Bulkley Capital, which helps middle-market business owners and management teams sell their companies, make acquisitions and raise capital.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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Imagine you are the founder of a family business that grows to become the third-largest private insurer in the state of Florida. Your company has more than 300,000 policies that generate more than $500 million of gross written premiums annually and is on a path to grow further with increasing exposure to hurricane and other forms of catastrophic risk. You are ambitious and even see taking the company public someday. Because you own 32% and you gave each of your five grown children 12% of the company, you have the power to promote either a serious or a shallow corporate governance culture. Since you know your children would never vote against you, you have the power to choose your board of directors, influence board processes, choose the CEO and dictate the strategic direction of the company, including decisions around growth and risk. How wisely would you use these powers? How seriously would you take corporate governance?

Such was the situation in 2004 for the Poe Financial Group (PFG), parent company to three insurance companies serving the Florida market. Four 2004 Florida hurricanes later, after huge losses, PFG decided to "double down" and take on more growth and risk in 2005. Following four more Florida hurricanes (in 2005), the Poe insurers were ordered into liquidation. What was the price tag? According to the Department of Financial Services, "the insolvency of the Poe insurance companies represents the largest insurance insolvency in Florida's history." The insolvency necessitated the payment by the Florida Insurance Guarantee Association of $1.2 billion in claims, requiring the state to approve a special 2% tax surcharge to help cover the bill. Other stakeholders were also losers, including employees who lost jobs, vendors who lost contracts and investors who lost wealth. In December 2015, all litigation matters in this case were finally settled, representing years of legal costs.

The purpose of this article is not to point fingers at any particular decision maker, but rather to constructively learn from some of the major governance decisions that were made. The Poe case is an example of the high costs of not adopting a serious corporate governance culture. Could these costs have been avoided? Would the Poe companies be thriving today if corporate governance had been taken seriously? We believe the answer is yes, and we highlight three important governance decisions that were subject to the power of the founder.

Who should serve on the board?

A major governance decision involves board composition. If you were the founder, what portfolio of talents would you want on the board? Would you consider the strategic direction of the firm? Would you want the talent necessary to staff and lead the audit, compensation, nominating and governance, and other committees? Would every board member need to understand his or her duties as a director? Would you want your directors to be independent-minded and willing to speak their minds and influence decisions? If the answer to these questions is "yes," you would be using your power to promote a serious corporate governance culture.

In the case of PFG, nine board members were elected in April 2004. There was no nominating and governance committee; the founder, who had a very weak understanding of corporate governance, made the nominations. Hence there was no process in which an "ideal" board portfolio of talents and experience was identified. Instead the founder invited his five children and his brother onto the board in addition to the non-family CEO and one independent director. None of the directors had catastrophic insurance experience, although this represented a significant strategic direction for the company. Most board members did not understand their board duties—including the founder, who named himself chairman of the board. There were also no processes in place to educate board members on their duties or governance documents, such as committee charters with written duties and responsibilities. The founder was relatively financially illiterate, as were many board members. According to deposition evidence, none of the Poe children would have voted against their father, and he had a record of not taking advice from the sole independent director. In short, the de facto result was a dysfunctional board with limited qualifications, greatly lacking in governance education and processes, whose decisions were dominated by an unqualified chair.

Who should be the CEO?

Many board experts agree that perhaps the most important decision a board makes is the hiring of the CEO. Would a well-qualified board consider the strategic direction of the company when making the CEO decision? Would it be prudent to seek a candidate with successful experience as a CEO, including experience with insurance and catastrophic risk? Would such a CEO need strong governance skills and the personality to be an independent-minded leader? If there were no viable internal candidate for this position, might the board form a search committee for an external candidate? We believe a company with a serious governance culture would adopt a rigorous decision-making process. At PFG there was no evidence of board deliberation on this decision. Deposition testimony reflects that the founder in 2004 simply asked a CPA he had worked with for years to assume the CEO position. The new chief executive had no successful track record in the CEO position, no catastrophic risk experience and limited appreciation of corporate governance—and, arguably, he lacked the character to disagree with the founder on major issues.

Who should serve on the audit committee?

Florida state statutes require every controlled insurer to have an audit committee consisting of independent directors. Presumably the state believes the insurer's loss reserves number to be so important that, by statute, the audit committee is required to meet with management, the independent auditors and the independent casualty actuary to ensure the adequacy of the insurer's loss reserves. This makes sense, since strategic decisions on growth and risk are affected by the amount of capital an insurance company has to cover its expected losses. How would a company that took its corporate governance seriously staff such an audit committee? Would all the committee members be independent and financially literate? Would there be a designated financial expert? Would membership include experience with catastrophic risk and both GAAP and statutory (insurance) accounting? Would the audit committee chair have significant experience with audit committee processes and promote a culture reflecting a serious and professional committee tone? Would he or she devote time between meetings to engage in effective interaction with the CFO and other parties to ensure the "right" agenda, with the "right" materials and the "right" expertise at meetings?

At PFG there was an audit committee on paper, but in effect there was no functioning audit committee. There was no audit committee charter. There was limited evidence that the committee ever met, and, if they did, it was just once during the year. The CFO, typically the primary management contact with the audit committee, revealed his lack of understanding of audit committee processes when he testified that they "maybe" met once per year and justified that by saying they had few audit committee decisions to make. There was no designated audit committee chair. The members were not independent and included the founder (relatively financially illiterate), the CEO and two of the Poe children. Their inactions suggest that none of them understood the duties and responsibilities of the audit committee.

Benefits of a strong governance culture

We believe that the "right" board would have engaged in the "right" processes to hire the "right" CEO. With a culture of strong governance at both the board and management level, the board would have made better decisions with higher-quality information. When the founder, who controlled the board, made the decision to continue aggressive premium growth after the 2004 storms, he did so against the advice of the one independent director and with flawed information. For example, the year-end 2004 loss reserves were significantly underestimated, making the insurance companies appear healthier than they actually were. When this came to light in May 2005, this would have been an important red flag for PFG's governance processes. The "double down" decision would have likely appeared to be even more imprudent to a well-qualified board, who may have well insisted on a shift in growth strategy prior to the first 2005 storm in July. A serious governance culture would have enabled the board to protect the value of the corporation.

What makes this case different from household-name cases such as Enron is that the power to either take corporate governance seriously or consider it to be a shallow chore lay in the hands of one person, the founder. This is not unusual for a family business. We believe the PFG case highlights the prudence of promoting a serious corporate governance culture and the potential astronomical costs when this responsibility is shirked. As the famous line from the Spider-Man movie states: "With great power comes great responsibility."

Carla Barrow, Esq., served as counsel for the Department of Financial Services in the civil case against PFG. James G. Tompkins, Ph.D., is the director of the Corporate Governance Center at Kennesaw State University and served as the corporate governance expert witness in the matter (

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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