At times it can be difficult for a family business to notice crossing the line between favouring a relation or close friend because they are the best choice, and choosing to work with them out of personal ties instead.
This on-going issue needs to be at the forefront for the company’s board, in order to ensure that every business decision is made to the benefit of the company as a whole, and not to simply favour family members.
Family businesses in particular may be at risk of ‘boiling frog syndrome’—while a frog placed in boiling water will immediately jump out, a frog placed in water that is heated gradually will not notice the temperature change until it is too late. As a business grows, it may not be obvious that the risk profile has changed, until something happens,” cautions a Commissioner in our recent Women Corporate Directors Thought Leadership Council report Enduring Across Generations: How Boards Drive Value in Family-Owned Businesses.
It’s in the best interests of the company for each Director on the board to always approach each decision with the intention to find a fitting solution for the company as a whole, not one that would suit themselves or their family best. If the board is constantly aware of the possibility of conflict in each new business transaction, they will be able to better flag any issues early on and make the right decision without personal ties coming into it.
Often family businesses that have transitioned through multiple generations, have done the same in a community. Not only has the ownership not had an outsider, but employment at the company could also be passing through families in the community.
This can make it difficult to see the wood for the trees, as employees can become as invested in old trains of thought within the business as the owners are, whether they serve the business or not, and thus simply help to embed them even further. In the worst case scenario employees could be afforded too much trust purely because of the historical connection, when they possibly shouldn’t be trusted, and in the best case, they simply can’t help identify a problem, as they don’t see it as such.
A smart board takes a step back from the business as a whole to accurately analyse the right course in any business decision. It’s possible that the best course of action could even be to bring a complete outsider onto the board to be able to bring this objective eye.
“You need someone on the board who will say ‘Wait a minute, have you thought about this? Hold on—hang on. Here are all the risks.’ It just gives balance,” suggests Darcy Howe of WCD.
Ultimately, a board that is a mix of family members and non-family members can help reduce any grey areas leading to possible conflicts of interest for the company. Every transaction and partnership can be evaluated from an ethically objective point of view, when everyone is on the same page to think as a business run by a family, and not as individual family members.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.