Implementing a board as an important mean of family business governance

Boards and family business governance

During conferences and workshops many family business owners come up with different opinions about boards. Some say that they would never ignore any recommendations offered by external board members because they see the board as an institution to prevent the owners from making mistakes. Besides that, the board is an important institution to discuss goals and strategies. But I also meet family owners who dismissed their board after a year because the board had not generated any value. What are the differences between these two views?


Senior Manager

KPMG AG Wirtschaftsprüfungsgesellschaft


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Definition of benefits

I recognize how important it is to discuss and define the expectations that the owners have regarding their board. In a case of a sole owner it is easy. He or she can define the expected benefits alone. If there are more owners, they should discuss the benefits and define the limitation of their board in a workshop. After this discussion among the owners, they should discuss their expectations with the board members. This should be done regularly to check if expectations are met or to find ways to improve the task performance of the board.

Some entrepreneurs expect that in cases of their temporary absence or death the board should ensure management and ownership succession. This happened in a family firm I know. The sole owner of this corporation died in a plane accident. In this situation, the two sons were grateful for the support of the board because the board members helped them manage the succession professionally.

Moreover the board can act in a deadlocked situation. This is especially necessary for joint or shared leadership. Two cousins, each 50 % owners of their garment producer have an advisory board composed exclusively of external members. Here, the board is an institution which makes decisions in critical situations, when the two cousins have opposing opinions.

A board can also act as a sparring partner when important decisions have to be made. An entrepreneur who attended one of my board seminars said to me: "I established an advisory board because I wanted to define the strategic direction of my company and then discuss it with the advisory board. I also wanted to professionalize the decision making process. To have a sounding board, I would need the right advisory board members."

The perfect composition

Having the right board members is important for the long-term success of the family business. I recommend regularly checking if the board should be re-organized, in case the tasks the board undertakes have changed with the development of the company. However, some family business owners have had difficulties in changing the composition of their boards. I believe board membership is not a long-term position. A non-executive board member is worthwhile for the company, as long as he or she can bring value to the company through unique experience and abilities.

Entrepreneurs often define personal requirements, which have to be met by the advisory board members like integrity, sense of responsibility, the will for a close collaboration, leadership experience and openness. It is important to clearly define which person fits the board. Quite often, the manager of a publicly listed company who is very status-oriented would not necessarily be a good fit for a family business; where it is often all about commitment, entrepreneurship, and keeping your feet on the ground.

From a professional perspective a board with three non-executive members should be constituted of people, with three different functional backgrounds. One member should be a business specific sector expert, another finance and accounting expert, and the third an expert in succession. It is important that other entrepreneurs are on the board, as well. The other day, an entrepreneur asked me to find an open-minded person for his board. Ideally he had to be young, creative, not familiar with the sector, but an entrepreneur who understands the family business dynamics. The goal was to bring new drive into the board.

Open discussions

From my experience board members sometimes seem to beat around the bush. Everybody sees the problem, but do have not the courage to address it. For instance this can be over a succession issue. Very often, if I am working with a family and their board, I’ll wait to see if someone addresses the problem. If nobody does so, there is a strange atmosphere. But if someone addresses the topic, then normally a good and open discussion arises. Very often, great solutions are found if the problems are discussed openly. This is the goal of a board – finding solutions to take the business and the family further.

If you want to know more about how to develop a board in your family business, please contact your local KPMG member firm professionals. If you want to read more about family business governance and family constitutions, please see: Governance in Family Enterprises – Maximizing Economic and Emotional Success, by Alexander Koeberle-Schmid, Denise Kenyon-Rouvinez and Ernesto J. Poza, Palgrave Macmillan, ISBN 978-1-137-29389-3, entitled to a 20 % discount with the promotional code WORLDPALGRAVE20 if ordered through Palgrave.

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