Demystifying family boards

Strong governance builds a legacy for generations to come

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Case study 1

The second generation (G2) was running the business, and the board was composed of all G2 siblings. Meetings often ended with arguments, raised voices and harsh language. Having a non-family business executive attend meetings helped for a while, but family cohesion was eroding. In order to position them for long-term success, they restructured the family board of directors, adding two outside members, and created a separate family council. The result has been significantly improved family unity, more professional business board meetings, and improved focus and growth of the business.

You started this business 20 years ago, thrived at times, battled through recessions and setbacks, and today it is larger and more successful than you dreamed.

You are looking for the next stage of growth, and you would like to get your heirs involved in leadership (after all, you passed most of the ownership to them, but not control). What are your governance options, and how would they work?

Alternatively, you are the next generation. Your parents passed away, you share ownership with your siblings, and you don’t always agree on the direction for the business. You don’t want to sell the business, but you would like to have more peace and agreement among the owners. What can you do?

Maybe you are a family member or a trusted advisor who has been asked to serve on the board of a family business. What does that mean? What is your role and responsibility as a board member?

How can you make sure this business continues to grow and thrive for the next generation?

Many variations of these scenarios are commonly found in family businesses throughout the country. Families need to decide on the right governing body for the size and stage of their business, as well as help their members understand their role to best help the business.

Here are a few of the key questions to consider:

  • How should business and family governance change as the business matures and the family grows?
  • When is it time to separate business governance from family governance?
  • What is the purpose of a board of directors?
  • What are the responsibilities of a board member?
  • Who should be on the board?

Governing bodies in a family business

A family assembly or family forum is the group of all family members. Sometimes participation requires a minimum age and may exclude in-laws. This group approves major policies and procedures, as well as changes to the family charter, and it elects members to the family council.

A family council governs family issues. This group typically has five to nine members who serve staggered terms and act as a link between the family and the business board of directors. They lead the creation of the family charter and oversee any edits, support family succession planning and education, and assist in resolving family conflicts.

A shareholders council is the group of owners of the business. It excludes spouses and family members who do not own shares. This council may be charged with proposing board of directors members.

A family board of directors blends business and family governance. It usually is the business board of directors, but when the family does not have a separate family council, it handles family topics as well. They are typically found earlier in the business life cycle and generally consist only of family members.

A business board of directors is the governing body of the business, separate from the family council. Most often, this body includes non-family members and is focused on defining the business strategy, overseeing its operations and advising the leadership team.

An advisory board of directors functions similarly to a regular board, but its members do not have voting rights. They are sometimes used as a transition step from a family board to a business board by adding non-family members in an advisory capacity.