Implementing a Board of Directors in a Family Business
Having some kind of governing or advisory board for your family business can be extremely useful. A great board of directors provides a unique group of individuals who are focused on what your family business needs to be successful. A board will guide you through risk assessment and major decisions, help expand your vision and set long-term goals for the business, and assist with the implementation of strategic objectives.
My own personal experience as a 4th generation family business owner, as well as the countless examples from boards I have served on, is that they can be enormously helpful. Therefore, I am a huge proponent of instituting either advisory or governing (fiduciary) boards in the family businesses I work with as clients of Quad Group.
Types of Boards
There is a difference between governing boards of directors and advisory boards for businesses. A governing or fiduciary board of directors is a group of people who manage or direct a company or organization. A formal board of directors typically is elected and serve terms, during which time they actively represent the shareholders’ interests and jointly supervise the activities of the organization. Differently, an advisory board is a group of individuals who provide non-binding strategic advice to the management of a business or organization. Advisory boards tend to be more informal by nature, with greater flexibility in their structure and implementation compared to a governing board of directors. Learn more about boards.
In our family business, Sun Media Group, it was my dad, James, who pushed us toward having a board of directors. He had heard too many horror stories of family businesses torn apart by infighting or having one rogue family member wreaking havoc on the productivity of the business and family relations. He genuinely believed that a board could help provide us valuable outside perspective, and the structure our company needed to be successful moving into future generations. We had always had a “family council” that met monthly, but that was a group of family and interested parties. It was important to my father that our board be a board of directors, and include board members from outside the family and the company ownership. The idea of moving to a governing board of directors was something quite different to consider for our family, as it is for most family businesses.
Defining Our Board’s Structure
It took us a significant amount of time several years to finally put our board together. There were five owners in the 4th generation and, along with my Dad, we developed the structure of the board. After much discussion, we decided that we wanted four outside members and three inside members, with the majority of the vote to be with the outside members. We thought that this would help us attract quality, competent board members and would also show that we were not looking for a rubberstamp board. Our board was going to have authority, especially with the outside members holding majority. A significant challenge we all experienced was to get more comfortable with the idea of sharing our family business openly with the outside board members. Of course, we had to do that sincerely and authentically in order for our board of directors to be effective.
We decided that the board would meet quarterly and attend committee meetings and company functions as needed. For consistency on our board, we planned staggered term lengths so that the outside board members would not all turnover during the same year. For the inside members, the chair of the board would be my Dad, and we would rotate the other two members from the 4th generation family members.
Determining the Characteristics and Skillsets of Our Board Members
After defining our structure, we outlined the qualities that we wanted to have in our board members. The most important one to us was trustworthiness. Some of the other qualities included integrity, willingness to take tough positions, hold constructive stands, and diplomacy.
Once we knew the characteristics of the people we wanted on our board, we looked internally at our organization and determined our internal strengths and weaknesses. This allowed us to pinpoint the areas of additional expertise and guidance that we wanted external board members to provide. We also knew we wanted a mix of varying ages, and both male and female board members. From all these measures, we created an outline of the criteria we were looking for in our board members. We wanted to be sure we stayed focused and objective as we selected individuals to serve on our board.
Developing Job Descriptions for Board Members
Next, we worked on the job description for board members. Our belief was that it was management’s job to manage Sun Media Group well, and it was the board’s job to make sure Sun Media Group was well-managed. We wanted our board to stay high-level, focusing on our greater vision and direction of the company.
Some of the specific responsibilities for our board of directors included:
- reviewing and accepting our yearly budget and strategic plan
- endorsing major product changes
- approving major capital expenses
- advising on our diversification efforts
Selecting the Right Board Members
Once we had a clear plan for the board’s structure and a descriptive profile of its members, we organized the plan for the interview and selection process. We stayed away from paid consultants, close friends, competitors, and vendors as potential board members. However – all of these individuals were great sources we tapped for names of potential board members! We developed a list of prospective candidates and a packet describing our board’s mission and member standards to be sent to the potential candidates. By developing this standardized packet, we could do a very objective written resume screening, and then interview the top candidates through in-person interviews. All of the 4th generation owners and my parents interviewed the candidates, and the final decision for outside board members had to be a unanimous vote by all seven family members.
Creating a Written Board Manual
Before we held our first board meeting, we developed a Board Manual to help new board members get fully acquainted with our company.
Our Board Manual included:
- our company history
- family members and top leadership bios
- ownership and stock information
- organizational chart
- our mission statement
- strategic plan and goals
- information on our circulation territories and top advertisers
- company financials
- competition and market information
Our First Board of Directors Meeting and Beyond
We developed an agenda, held our first board meeting, and never looked back. Our board was finally in place and active. It was a commitment, but well worth the time and effort.
One of the first issues the board helped us through was compensation for owners who were not working in the family business. We developed a formula to pay owners based on company performance, allowing the owners to get some equity from the company. Each month we prepared board reports, and our board meetings were held quarterly and included financials, company updates and presentations for our board.
Over the years our board offered such great counsel and sound advice, whether it was for the launch of new magazine or if we were looking at buying a weekly newspaper. They confirmed (or not) our direction, strategic decisions and brought an invaluable outsider’s perspective to the table. They added professionalism and made us accountable to someone other than ourselves. They held our feet to the fire and it proved to be a very good change for us to make in the governance of our business.
Go to the Next Level with a Board of Directors
There is no question that implementing our board of directors brought our family businesses to the next level. They shared their experiences and added that outside, fresh perspective to important decisions. They helped to objectively assess the performance of individual family members and address compensation policies. This area, in particular, can be particularly challenging in a family business run solely by internal family members. Our board provided objectivity and accountability, and this is something that so many family businesses can benefit from.
When my dad passed away in 2015, the board was there for support and advice. They were still challenging us and giving good counsel. They supported the 4th generation through the most difficult decision of our careers, which was either to re-invest and expand significantly in order to compete and survive or take the company through the sale process. We made the decision together as a board of directors, and took the company through a successful sale in 2017. It was bittersweet, but it was the right decision at the right time.
Could Your Family Business Benefit from a Board?
Setting up the right governing structures can definitely help family businesses find success, however the business chooses to define it. If you are considering a board of directors or an advisory board for your family owned business, Quad Group can provide the guidance and expertise you may need to develop the most effective board for your company. We hope you will contact us so that we may discuss your ideas and how we can work with your business.
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