Well-chosen Boards Can Aid Family Businesses

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Reprinted From:The News Journal
Family-owned businesses often operate without the checks and balances that independent boards provide. It is not uncommon for the owner to prefer an informal management style, which could result in weak operational procedures, ineffective accounting systems and poor strategic planning.

Many businesses get by because the owner is on top of every facet of the business. Eventually, though, the typical family- owned business suffers when methods of management do not keep pace with the growth of the business. In a family business, without a board, there usually is not change unless initiated by the owner.

In these businesses, the ultimate decisions and responsibilities are those of the owner. But growing, dynamic family businesses should consider creation of outside directors or advisers. The only difference between the two involves the legal liability of the person serving.

Board members are usually in more of an advisory position and have little authority. They are there to help with company goals and to bridge gaps that might exist among family members.

The board needs people who will make a difference, work well with the chief executive officer and clearly define its role. Board members need to understand that their role is to ask questions, advise and recommend. Care must be exercised not to tell the owner or CEO how to act or do his job.

Outside director/advisers may be able to help in the following ways:

  • Contacts may help with raising capital, creating new business and getting information on new trends or technology.
  • Mediation in family disagreement or conflicts that are harmful to the business.
  • Provide independent resources that can help the board and/or management.
  • Offer a constructive viewpoint on important matters.
  • When choosing board members, consider their expertise, willingness to serve, independence and whether they have the time and commitment to serve.

Advisers and board members should have successful experiences that will benefit the business. Many people are pleased to be asked to serve and will be personally and professionally challenged by this involvement. It is crucial that outside board members and advisers be objective, independent and willing to say what needs to be said.