Building a Successful Family Business Board: A Guide for Leaders, Directors, and Families
By Jennifer M. Pendergast, John L. Ward and Stephanie Brun de Pontet
Palgrave Macmillan, 2011
261 pp., $40
In 1991, family business researcher and consultant John Ward published Creating Effective Boards for Private Enterprises (Jossey-Bass) in an effort to convince owners of small and midsized companies that a board of directors with outside members could benefit their businesses. Building a Successful Family Business Board: A Guide for Leaders, Directors, and Families, written by Ward along with two of his colleagues at the Family Business Consulting Group, Jennifer Pendergast and Stephanie Brun de Pontet, is an updated and revised version of the earlier work, now with a focus on family companies and featuring results of a survey on board practices conducted by the group.
The book answers virtually every question a family business owner might have about an independent board: why it’s desirable to have one; how it can help the CEO and the company; how to find directors and what to pay them; what to ask when interviewing board candidates and what information to share with them; how frequently boards should meet; whether your board should have an audit or compensation committee; what items to put on a board meeting agenda; how to evaluate directors and remove those who aren’t working out; how to determine which family members should serve on your board; and how you can contribute as a director on another family business board.
An active board with independent directors, the authors assert, “is the single greatest step for family business success and continuity.” They define “an active board” as one that meets at least three times a year. To qualify as independent, they note, a board should include at least three outside directors.
Results of the authors’ survey (360 respondents, 39% from companies with revenues of $101 million and above and 32% in the fourth generation and older) provide perspective to readers wondering how their businesses measure up. The results seem to indicate that even owners of large family firms have some work to do in the governance arena. For example, the FBCG researchers found that 58% of companies with sales of $100 million or more had active boards, and only 33% of those businesses had three or more independent directors.
The comments from family business owners show how the book’s recommendations play out in the real world. A case study of how Schurz Communications of South Bend, Ind., revamped its board to include independent directors, for instance, details a two-year process. “We recognized that the old board had gaps,” James Schurz tells the authors.
Tables, exhibits and appendices provide further details to illustrate points made in the book (examples: “Getting a Board in Place in Less Than a Year,” a sample agenda for a meeting that “underutilizes” a board’s expertise; a sample board prospectus; responsibilities of various board committees). Among the most valuable chapters is the one on “Making the Most of Your Board.” There is also a chapter on the relationship between family governance and business governance.
Readers for whom corporate governance is a new concept need not worry. This exhaustive volume provides soup-to-nuts explanations of processes and procedures. Indeed, the authors delve so deeply into the basics as to suggest that at the first board meeting the chair should “express his or her pleasure at having each director on the board.”
Along with the essentials, some striking insights are included. Among them: “Many family-owned businesses are undermined by a common weakness: a tendency to undershoot their potential. Entrepreneurs may become reluctant to assume greater risk or to jeopardize any personal control when their companies grow established and successful.”
This book will be helpful to CEOs with doubts or fears about instituting an independent board, as well as to next-generation members who aspire to board service. “The role of an effective family business board is never to force or coerce,” the authors write, “but to listen, lend counsel, encourage and support, and raise questions.”
Does your family business employ American workers? Do you make your products domestically? A new initiative offers a way to raise awareness of your contribution to the U.S. economy—at no cost to you.
Artwork proclaiming, “Made in USA by Family Business” is available for downloading free of charge at www.madeinusabyfamilybusiness.com. Business owners are welcome to use it as a banner on their websites, print it as a set of decals or incorporate it in their packaging design. The artwork can easily be scaled to accommodate a variety of size requirements.
The website is a project of the Family Business Alliance, a collaboration of several dozen family business education programs nationwide, most of which are based in universities. The idea was conceived by Ira Bryck, director of the University of Massachusetts-Amherst Family Business Center.
The goal of the non-partisan effort, Bryck says, is to raise awareness of U.S. family businesses as employers of Americans. “I think they deserve some sort of special recognition and appreciation,” he says.
“There’s no doubting that many families in business together have to demonstrate certain values,” Bryck says. Among those values, he notes, are scrappiness (necessary in order to stay in business), loyalty (for example, to a domestic workforce) and commitment to quality (which is easier to communicate and maintain when both supplier and client are U.S.-based). These values, Bryck asserts, should be promoted and celebrated.
Family business owners are invited to publicize their companies on the website (also at no charge). Organizers of the initiative suggest that business owners submit a photo and a brief discussion of their commitment to producing their goods in the U.S. A survey on the site seeks business owners’ views on family businesses’ contributions to the U.S. economy. The website also provides information on Alliance members’ family business education programs.
Many entrepreneurs who employ their spouses or children consider themselves small-business owners and don’t realize they are also family business owners, Bryck says. He adds that he hopes participation in the project will get them to start thinking of their enterprises as family businesses—and to be proud of it.
Copyright 2011 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.