First among equals
My office at Family Business is right next door to my husband Bob’s Directors and Boards office. While the two magazines address very different audiences—family business owners and directors of large corporations, respectively—family businesses would be wise to take notes from public companies on the value of a board of directors.
According to Bob, a long-time director of several family-owned and family-controlled businesses, a family’s outside board safeguards the owners’ long-term interests by ensuring the firm’s continued profitability, assists in the smooth transition of ownership to the next generation and provides advice. The ideal seven- to nine- member board would include at least three to five outside directors. Often family businesses reject the idea of an independent board because the owners are worried that the family will lose control. This is not likely to happen, since the outside directors are there to serve the shareholders and can be voted out if there is major dissension.
Jim Kristie, editor of Directors and Boards, asserts that a CEO of a family company would miss a unique opportunity if he or she did not allow for that “extra set of eyes and ears that can add value to the business.” Jim adds that while the family is focused on the day-to-day operations, they are often unable to fully assess political trends and economic opportunities. A family company could establish a fiduciary board or an advisory board. In my family’s business in Kansas City, both structures were applicable.
My father, Paul Uhlmann Jr., ran a large flour milling and grain concern with his father and brother. At the time, it was publicly traded, but family-controlled. To comply with SEC regulations, the family set up a board of directors that consisted of family members, the family lawyer, the retired chancellor of the University of Missouri, the dean of the agriculture school at Kansas State University and an economics professor who was distantly related. Each held shares and was very well-known to the family.
According to my father, the group was extremely helpful as a sounding board. They offered expert advice on matters such as acquisitions and labor relations; examined scientific and technical information on wheat (the company’s major ingredient); and discussed general marketing strategies. The chancellor was particularly helpful with the psychology of negotiations with the unions that represented workers at the flour mills. Later, when the family took the company private, they kept the board until, through natural attrition, the only ones left were the family members. I sat on the board for ten years until it gradually evolved into a family council.
To be truly effective, a family board should have a general understanding of the business and its marketplace. It should engender open communication, render good judgment and be accountable to the shareholders. But, as my husband reminded me, the family remains primus inter pares, or first among equals. In other words, the family still has the final say.