Good governance is more than you think . . .

Bill Alexander

Last week Wharton professor and family business advisor Bill Alexander presented a workshop on how family business executives can set up a board of advisors. This post isn't a blow-by-blow account of that presentation because that would be giving away the store--obviously, the High Center would like you to enroll in this executive workshop the next time it is given.

One point Bill Alexander made is worth mentioning and merits your attention: Yes, a board of directors or advisors can provide governance and help a family business leader accomplish your strategic and tactical goals. However, governance is about more than installing a board. Good governance also includes setting up family meetings for the family shareholder group. It requires looping in non-family shareholders. It means doing the necessary work to set up or to preserve a functional family business ownership group--before any outside director you hire steps into the picture.

Never bring in a paid outside director or advisor expecting them to right your vessel. If you have a dysfunctional family ownership group, you must take steps to get that ship sea-worthy first. If you have squabbling and in-fighting within your ownership team beyond what is reasonable and customary, you need to address that dysfunction before bringing in someone to oversee the rest of your operations.

You will do your family business a world of good by establishing a regular communication for non-family shareholders through constructive, focused family meetings and you'll be laying the necessary groundwork for a board of directors or advisors to help you realize your key objectives.

quote of the week . . .

“The intent of all governance tools is to enhance the capability of the family business system to produce distinctive resources for competitive advantage by driving ambiguity out of the system. This will specifically improve the system’s ability to generate high levels of trust.” 

-- Bill Alexander ”Good Governance: Impacting Your Bottom Line”

The three responsibilities of a Board of Directors

by Gale Martin, Director of Marketing and Membership at the S. Dale High Center for Family Business

Blanching at the thought of instituting a Board of Directors for your family business? You're not alone. Many family business executives don't like the idea of empowering a group of people who'll now make decisions the chief executive is fully capable of deciding him- or herself.

According to Bill Alexander, the May presenter at the S. Dale High Center's Educational Seminar Series, such a concern may be unfounded, that there are three (and only three) functions of a Board of Directors for a family-owned business:

1. Ensure the company has a clear direction (approving strategic and annual plans).
2. Ensure assets are properly employed to the benefit of shareholders (approving human resources plan and capital expenditures).
3. Ensure there is empowered and competent leadership in place (electing officers).

Now that sounds like a reasonable set of responsibilities for a board of directions--one that supports family business executives without interfering in issues that aren't the board's concern.

Based on Bill's guidelines for boards of directors, have you ever served on a board or staffed a board where directors where given responsibilities outside this well-defined purview of what boards should do? If so, what were the results?

A Family Constitution is a great governance tool...

by Mary Beth Matteo, Founding Director of the S. Dale High Center for Family Business

Many family business leaders stop thinking about governance because they associate it only with a Board of Directors. In reality, governance has many aspects to it:

• Family Councils (to facilitate open communication among family members)

• Boards of Directors and/or Advisors

• Family Constitutions and Mission Statements

• Leadership Development for the next generation

One of the most effective and important tools for the family is the Family Constitution, which is a legal or quasi-legal guide on how to put the family’s priorities, values and mission into action. In essence, it’s a blue print for everything the family intends to do. Here are some areas that are usually included:

Owner Commitments, Rights and Responsibilities: might include guidelines for Ownership, Inheritance and Succession, and Personal Development of family members. Even, marriage and divorce.

Finances and Investment: might include who owns assets, stock agreements (buy, sell and exit) who can purchase and sell shares, and how it will be done.

Family Employment and Compensation: generally includes rules of entry, how jobs will be offered to family, supervision/mentoring, and fair compensation.

Check out a sample family constitution, from the Carjaval Family, SMEToolkit.

Sum and Substance: Something is better than nothing in the world of governance! As with the Family Constitution, starting out small and adding sections as you go along is just fine.


Let us know your thoughts in the comments section of this post:

Does your family have a constitution? How has it helped your family?

So, a board of directors isn't for you? You have options . . .

by Mary Beth Matteo, Founding Director of the S. Dale High Center

What if a board of directors is not for you? Three things usually present obstacles to developing and implementing a board of outside directors: you believe your company is not big enough; it would be very difficult to “staff” a board with the required data; or, your company doesn’t have the funds to pay outside directors.
So, what are your options? The best way to answer this is to look, first, at when a board is most useful. Here are a few reasons to look to outside advisors:

• Your company is embarking on something new, e.g. entering a new market or developing a new product

• You are entering a period of rapid expansion and your company would benefit from the advice of a company that has been through it

• You have faced some major setbacks and would benefit from the insights of a company that has successfully weathered a storm

• Your company is doing strategic planning and could use advisors to force you to think outside the box

You have a couple of choices in lieu of a full board:

• A Board of Advisors, hand-picked to address a particular issue

• A mentor or business advisor, an expert in a particular field

• A consultant

• Peer Evaluation Teams, a carefully selected group of peers, such as one sponsored by your trade association

Sum and Substance: any of these options is a good first step, sometimes an all-important one. However, it’s important to remember that there are certain things only a Board of Directors can do. Only a Board of Directors can guide your company over time. Only a Board of Directors can “take you off the hook” by providing objective standards for your family! Only a Board of Directors can remove the ambiguity from family business decisions, and build trust! These are also important aspects of family governance.