Having a board as a private company, family businesses seem to be a hassle in the best case, and unnecessary in the worst case, especially when these board members are outsiders.
"Why should strangers know all my questions, or how much money I make or how much money I lose?
"The owners of most private companies are executives and board members.
If not all shares, they usually have the most shares with their families.
Then, it's no wonder that board meetings are almost non-existent or just a form.
However, the boat is a must, especially if you want to create a seamless succession. Why? 1.
Due to the need for meetings and reports, it puts everyone in charge. 2.
It relieves political pressure and allows companies to create elite management, especially among independent directors. 3.
It allows the implementation of a seamless succession plan in the event that the board is constantly updated.
So, which type of board is best for family business?
There are various types of boards, but the most common ones are boards and advisory boards.
The board has so-called "fiduciary responsibility" and can be held accountable for lack of proper supervision or guidance.
They have the right to vote and will exercise the right to vote as needed.
When companies introduce outside investors, investors may get board seats or they may stick to independent members.
Many of the family businesses I have worked with started with the advisory board and then evolved into a board.
The purposes and objectives of the two committees are somewhat the same.
The question is: if so, what authority does the advisory committee really have?
The answer is No. they are easily replaced.
However, since they do not have a fiduciary responsibility, they can attract very talented independent directors who will be happy to serve the board, usually for a fee.
They can bring important expertise to the company and become a source of knowledge.
In addition, when there is external guidance such as the board of directors, the bank will feel much more comfortable, and even when there are external personnel involved, important employees will feel at ease.
What should you look for among independent directors?
It is wise to stagger the duration of the services of independent directors so that there is no need to change at the same time and there is continuity. Additionally:1.
They should have experience in family business.
Either working in a company or advising a company). 2.
They should have a deep understanding of such issues as inheritance. 3.
They should be an open and honest communicator.
The board must be able to raise objections.
It should challenge, explore and ask tough questions. 4.
They should be completely upright. 5.
They should devote themselves to service.
According to the New York Times article on family business management that I mentioned in my previous article, the board needs to be active and effective.
There are three main boards: active board, passive board and super active board.
The best board is the activity Board, which often meets.
There is usually a major director who is more involved than an ordinary independent director.
They asked for reports and questions.
A passive board of directors will meet from time to time and usually know nothing about what really happens to the company.
Super active boards are usually the result of a company that has experienced serious turmoil and needs a lot of manpower.
Persistence and guidance.
In one of the boards I 've served, we started initially as an advisory board, and then we became a board.
We have full financial reports every quarter.
We have helped to hire new accountants, lawyers and senior managers.
We help resolve internal conflicts and guide the CEO and his senior team on major issues, etc.
Boards with independent directors can play a very important role in all businesses, especially in family businesses.
I mentioned a few reasons: it created accountability, allowed Elite Management, and was very helpful in leading the transition seamlessly.
It should play a leading role in the very sensitive issues faced by family businesses as they transition to the next generation, specifically to ensure an assessment of the right successor and provide feedback to take on the leadership role.