Should my family business have a board?
Every situation is different
The greatest athletes in any sport have coaches because the most successful people in life can admit that they don’t have all the answers. They seek knowledge and insight from wherever they can get it. They realize in a game of inches, every little advantage you can gain is important. Having a board of advisers is a lot like having coaches. A good board of directors or advisers is a significant competitive advantage to most companies.
Deciding when to assemble a board is a question as old as the hills. It can be a headscratcher for family businesses. Common questions and conundrums tend to include:
· Will I lose control if I have a board?
· Do we have to be bigger before we have a board?
· Am I ready to answer to someone I am not related to?
There are no right answers to these questions because every situation is different. I am of the belief that the mere act of asking questions means you are ready to take the next steps with your business.
Family businesses can be insular, relying on directions of family members or a few highly trusted long-time employees. Opening up to outsiders can be a cultural hurdle to clear. Different generations of your company may not be comfortable with this idea. It will be up to you to listen to those concerns and help them see how a board can actually strengthen the business and professionalize its operations for generations to come.
As a business leader, you are immersed in the day-to-day of your company’s operations. You are dealing with the proverbial trees in your forest every day with your dedicated team of lumberjacks who are staring at the same trees. A board can help you see a more complete picture. They will help you chart a more strategic direction – one that is difficult to spot in the daily grind.
While strategy is a key advantage of a great board, there are countless others. A board can help with industry connections, be a neutral arbiter between family members, provide a check on business practices and hold the CEO accountable (no matter whose nephew he is).
Holding the CEO accountable is one of the most important aspects of board governance. A family business leader has trouble getting independent feedback. Your employees receive a paycheck signed by you. No matter how open you have made your culture, there will still be some hesitation to tell the emperor when he has no clothes. Your superiors or shareholders are likely relatives. A good independent board is just that -- independent and able to provide untainted feedback with no agenda.
The value a board brings is clear, so what are some common excuses for why a leader hasn’t formed a board?
I don’t want to lose control, or I don’t want someone else telling me what to do.
Broadly we are discussing boards of advisers here, not a board of directors. A board of advisers is there only to advise. Family ownership of the company does not change, nor does control of the decisions. The only change is that you get the benefit of other perspectives. You can work around this objection by educating the family shareholders about the role of the board and how it will help.
I’m too busy to deal with another meeting.
This is nonsense. Do you think Jeff Bezos and Elon Musk aren’t busy? Elon runs three or four companies that are bigger than yours and is actively trying to live on Mars. Being too busy is a key indicator that you need more outside help because you are being inefficient with your time.
My company is not large enough
Obviously, some companies are not of the size where the formal nature of a board adds much benefit over having outside friends and confidants. There are no hard rules on size here, but I would not invest in a company with greater than $10 million in sales that did not have a board structure to guide it.
There are many considerations regarding the structure, legal documentation, insurance, compensation you must evaluate. But the first step is asking “Do I need a board?”
Chris Yount led his third-generation family business to new heights before selling the company in 2018. He now shares his wealth of experiences by serving as a board adviser, angel investor and author (www.ChristopherYount.com).