Family business boards need women directors
Global companies—public, private and family-owned—compete with everyone everywhere for everything. Good directors can help companies acquire a competitive advantage in the global marketplace. If a company does only what worked in the past, its directors will wake up one day and find that they have been left behind.
The complexities of modern society, government and business models require exceptional corporate governance in order to handle global challenges, shifts in economic climates and new risks and opportunities. To manage all of this, great companies promote inclusion, candor, courage and cohesion in the boardroom. Companies must rejuvenate their boards to maintain their vibrancy and effectiveness, and a diverse board is essential to a company's success.
As a family company changes over time, so should its board's composition. Some of the newer skills in demand are an understanding of social media and other new technologies, as well as experience in emerging markets, cyber security, innovation, global branding, corporate social responsibility, strategic talent and supply chain management. Diversity brings new, relevant perspectives to the decision-making process for boards—perspectives that take into account the latest insights on addressing these newer challenges.
As General George Patton said, "If everyone is thinking alike, someone isn't thinking." And the reality is boards that look the same gender-wise and demographically as they did 20 years ago—or even five years ago—are likely to have too many directors who think alike. Family business boards need male and female directors who will bring the best-of-the-best ideas to the table and offer the broad thinking companies need to deal with the broad challenges they face.
There are a number of ways in which women directors can build stronger boards. Here are a few of them:
• Women bring fresh perspectives. Directors must understand the complex issues the company confronts. Women like looking at the big picture before making decisions. Because women—who are generally newer to boards—are less likely to have long-standing ideas about "the way things are done" on a board, they aren't limited to preconceived notions about what kind of impact a board can and can't have.
• Women build trust. During tough times, board relationships can break down; when there are problems, it is very easy to start pointing the finger. Women on boards are particularly good at negotiating conflict and rebuilding bridges.
• Women tactfully ask important questions. Women can often raise topics in a way that listeners find less threatening, thereby making others more willing to be open; they ask the tough questions in a diplomatic and appropriate way. They also know how to disagree without being disagreeable. By the time a woman becomes a corporate director, she's learned the value of courage and candor--qualities needed when confronting an elephant in the room.
• Women are mentors. The chair of Frontier Communications and member of the Xerox and Procter & Gamble boards, Maggie Wilderotter (who is also the co-chair of WomenCorporateDirectors' Global Nominating Commission), reports that every couple of years the four women on the Frontier board have a two-day retreat with senior and high-potential women in the company. In addition, all of the board members become mentors to C-level executives for a two-year period and see them three or four times a year outside of board meetings. This is a way for the board to get to know the talent in the organization. Then, when the board goes through the succession plan, each board member presents the executive with whom he or she worked. This helps the rest of the board get to know these executives and understand their capabilities and their potential.
Complexity on family business boards
Sitting on the board of a family business introduces an additional dimension to board service. While all board members represent outside shareholders, those on family business boards must represent the interests of the family as well. Family businesses often face extra complexity with competing family interests and sensitive questions around succession planning. And in many cases, it can be difficult to impose strict governance procedures in family-run companies.
A survey by Professor Boris Groysberg and Deborah Bell at the Harvard Business School, conducted in partnership with WomenCorporateDirectors (WCD) and Heidrick and Struggles, showed that directors on family business boards ranked their boards' performance as less effective than that of non-family business boards on almost every measure. Most directors of family businesses said the family companies' succession practices are inadequate and a low percentage said they are advancing diversity on their boards and in their companies.
Many family companies lack an adequate succession plan. There are either too few or too many potential candidates, which creates confusion and uncertainty for investors, customers, suppliers and employees. Family companies must first position themselves for the future by investing in robust leadership development, and by undergoing succession-planning processes. Then, they must understand the competitive landscape for talent; the different characteristics of family, private and public companies; and the motivations of the executives who are best suited to a family company role. Finally, they must know when it may be necessary or appropriate to consider candidates from outside the organization and what to look for in those candidates.
In family businesses, women often are the "family glue" or "Chief Emotional Officers." Women originally entered family businesses as widows; they would ensure the transition from their deceased husbands to the next generation, and sometimes stayed at the helm for many years. Today, however, we see more and more women succeeding their fathers or uncles as CEOs of family businesses.
WCD recently formed a Family/Private Business Council whose mission is to continue to enrich the WCD community through leadership, best practices in corporate governance, education, and diversity of thought and experience. WCD's Family Business Council will be helping conduct a deeper dive into researching family businesses later this year with Harvard professors Groysberg and Bell and Spencer Stuart.
Advisory boards can be an excellent tool for family businesses. For example, one family enterprise, EHR Investments Inc., created an advisory board for its aviation financing business—EHR Aviation Inc.—in 2008 to help determine the best approach for dispensing with repossessed aircraft. EHR Investments' president and CEO, Susan Remmer Ryzewic, notes that the advisory board members had deep knowledge of the market and its key players. An added benefit for Ryzewic was the personal relationship she was able to form with the advisory board members and how helpful their expertise has continued to be, even after the completion of the board's term. "Needless to say, I wish that I had established the advisory board earlier," Ryzewic says. "We might have avoided some of our business pitfalls."
Alison Winter, co-founder of WCD and director of Nordstrom Inc. and Blain's Supply, comments, "Many family businesses will reach a critical size and complexity that compels them to seek outside directors to give them a wider perspective on how other businesses in similar sectors are dealing with the issues of growth, talent development and development of plans for transitioning to the next generation of management. This fresh set of eyes can be enormously helpful to the owners and a great opportunity for qualified women."
Diverse boards can be a competitive advantage for corporations. They can provide an outside view; overcome blind spots in strategy; raise awareness of external risks; and build relationships with governments, society and other stakeholders in ways that executive teams can't always accomplish. For family company boards, independent directors also mentor, develop business support for the CEO and help draw the line between family and business issues. Moreover, having women on a board sends a "positive signal" to the market—a signal that the company has a greater focus on corporate governance and is performing well.
Top research organizations including McKinsey, Credit Suisse and Catalyst have found in their studies evidence of a high correlation between gender diversity and significantly better financial performance.
In their 2013 article in the International Journal of Business Governance and Ethics on their study of more than 600 directors, Chris Bart and Gregory McQueen reported that women are more likely than men to make decisions based on complex moral reasoning. Women's capacity and willingness to consider multiple perspectives enables them to more consistently make fair decisions when competing interests are at stake, the researchers reported.
WCD's global co-chair, Henrietta Fore, was elected to the board of directors of each of her father's companies. He taught her at an early age to understand what it means to hold a business through good times and bad. When the general manager of a family company died of a heart attack, Fore stepped in. She initially planned to operate as the general manager for two weeks—but stayed on, successfully, for 12 years. "I went on to serve on several major company boards, including ExxonMobil, and served as the administrator of the U.S. Agency for International Development (USAID), and director of United States Foreign Assistance," says Fore. "None of us knows where this training for girls and women in family businesses will lead. The paths will be varied and fruitful, and our businesses and world will be better for it."
We need to strengthen the role of women as directors and the performance of the companies on whose boards they serve. We must move together to create corporate governance as it should be—for it will take all of us to create it. Diverse family/private business boards that are multi-gender, multi-skilled, multi-national, multi-ethnic and multi-generational can make a difference not only around the table, but also in the world, and for the world.
Susan Schiffer Stautberg is the president and CEO of PartnerCom, which assembles and manages advisory boards globally for governments and corporations, both public and private. She is CEO, co-founder and co-chair of WomenCorporateDirectors (WCD), the only global membership organization and community of women on corporate boards (email@example.com).
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