Our Family Business Magazine team recently hosted a very successful conference in Orlando with Stetson University’s Family Enterprise Center. More than 130 attendees and speakers discussed important topics such as family and business governance, legacy and wealth management. My personal takeaway was that effective governance, both on the family side and on the business side, provides a distinct competitive advantage in the marketplace. This becomes even more important in later generations.
Several speakers at the conference spoke candidly about how establishing a board of directors helped their family companies emerge from financial difficulties. For some, engaging independent board members was the key to helping owners develop an effective strategy to turn the company around. A truly independent board member provides an outside perspective and is unafraid to challenge the family CEO when evidence shows the company is heading in the wrong direction. Independent directors can also provide solid business expertise and a view of what works in other companies. My husband, Bob, publisher of Directors & Boards, agrees that outside board members should draw on their expertise and judgment to ask the difficult questions and foster debate. Moreover, he says, outside board members should hold management accountable for financial results.
Bob, who has served as an outside director on several family companies’ boards, says the greatest challenge is to keep family and business issues separate. “Outside directors should focus their attention on ensuring the success of the business,” he says. “Family directors want financial gain, too, but not at the expense of other goals, such as passing ownership of the company to the next generation.” The role of an outside director in a family company is basically the same as that of a public company director, but the context is different.
“When designing a comprehensive governance process for a family enterprise,” says Dirk Jungé, chairman and CEO of Pitcairn, “it is essential that there be a respectful balance given to the family governance system and its relationship to the corporate or fiduciary governance system. Role clarification and boundaries delineation between these two systems need to be documented to ensure maximum benefits to all constituents.”
Family councils combine programs to teach family members about the business with fun activities to bring family members together—including those who are shareholders and those who are not. These get-togethers encourage communication, foster family unity and instill family values, all while helping to educate the next generation.
Family governance can take a variety of forms, but most family councils or family boards focus on family education, investments and philanthropy. Good governance of both the family and the business helps keep the family united and the business running smoothly.