At the end of last year, I had the pleasure of presenting the FBUK Governance Masterclass, in conjunction with Boodle Hatfield and Baring Marriott, to a diverse group of family businesses.
Whilst every family business is different in its ownership structure, maturity and the specific needs of the sector in which it operates, there was a consistent appreciation amongst the businesses represented in the room of the importance of establishing effective governance.
Policies and processes are essential to ensure the smooth interaction of the shareholders and other key stakeholders with each other, as well as with the business and its management.
Where management consists of non-family members, effective governance will also ensure that a clear, aligned vision for the business is communicated, providing a framework for management to develop the business strategy and policies, as well as in turn allowing the shareholders to hold management accountable.
"...A rare and valuable opportunity to hear from family business owners and advisors about the unusual issues facing us, and to compare different thoughts on how we safeguard our precious investments…."
The effectiveness of governance policies and processes will be realised in their ability to be both clear and transparent. This means that they are understood and adhered to by all key stakeholders. However, these policies need to be flexible and agile, and adapt to the constantly evolving needs of the shareholders and the business.
Through our panel of speakers we heard about how governance had enhanced the success of some very diverse family businesses, including:
- Ensuring dispersed shareholder groups with multiple family branches/generations and disparity between minority and majority shareholdings remain engaged with the business whilst not hindering business decision making processes;
- Bringing diverse thought and new skills to boards and shareholder groups through the appointment of non-family/independent directors and investors;
- Navigating shareholder politics through times of transition, most commonly generational transitions and the key role that diplomatic non-executive directors/advisors can play as independent facilitators to uphold governance processes at these times; and
- The importance of truly independent and transparent remuneration and appraisal processes for family executives, alongside practical approaches to these where the business is not of sufficient size to warrant extensive board committee structures or multiple independent board members.
"...Whilst not giving any definitive answers, it presented a really good opportunity to hear about similar challenges and some alternative solutions…."
It was recognised that, whilst family businesses are naturally private and have a tendency to resist external influence, the most successful have found effective ways to have an “outside” board. These boards include key family executives/representatives, as well as several respected, independent business leaders, whilst maintaining a strong united vision for the business driven by the family’s objectives for its legacy and its values.
The role of the board is to represent all of the company’s stakeholders, not just its owners interests, therefore, in the best cases, the board comprises family members, as well as outside business leaders. Ideally the majority of the directors, or at least three or four of them, will be independent and external.
"...Excellent panels and insightful attendees…."
Boards with independent directors are more effectively able to separate the focus of meetings away from the day to day operations of the business and take a more strategic focus in planning and making decisions about the business’ future strategy. Independent directors are there to help people see different sides of the issues and they provide a third perspective to counterbalance the views of the management and the family. Increasingly, we see family businesses differentiate between truly ‘independent’ non-executive directors and ‘family’ non-executive directors.
Both can bring valuable challenges to the executive management, whilst representing different stakeholder groups and ensuring that robust governance processes are upheld, providing reassurance to employees, customers, suppliers and investors.
If you are an interested party in the governance of a family business and would like to hear more insight and ideas as you consider your own practices, please do get in touch.
