Many family businesses are owned, managed, and operated by members of the same family. While this form of business ownership can offer many benefits to the owners, it can also bring unique challenges. This is where a board of directors and/or advisors can come in handy. Let’s explore the benefits and challenges of having a board or an advisory team. Then we’ll also evaluate what you should look for when selecting a board member for your business.
Board of Directors or Advisory Board?
You may choose to have a board of directors or an advisory board – or both! This definition from Advisorycloud.com is helpful to differentiate between the two. “The main responsibility of an advisory board is to help companies make strategic decisions by providing expert knowledge and guidance. In contrast, a board of directors is responsible for making sure that a company’s operations are running smoothly and profitably.”
To make this article less cumbersome we will use the term board of directors, with the understanding that both teams of advisors can provide similar benefits.
Why Have a Board of Directors?
Having a board of directors provides numerous benefits to any business but especially to family businesses. For starters, they provide an opportunity to bring in fresh perspectives and ideas from outside sources. An outside perspective can help leadership identify problems that may have gone unnoticed, while also providing new ways of thinking about solutions.
Additionally, having a board creates accountability which can help ensure that the business is operating efficiently and effectively. Finally, having experienced professionals can provide invaluable guidance as you make important decisions about the future of your company.
Challenges for Board Members in Family Businesses
While there are many advantages to having a board in place, there are also some unique challenges that come with them. One challenge is managing relationships between family members who serve on the board versus those who work in other capacities within the company.
It’s important for all parties involved—family members included—to remember that the ultimate goal of the board of directors should be making decisions that are best for the company as a whole rather than personal gains or agendas.
What Should Family Businesses Look For When Selecting Board Members?
When selecting board members for your family business, it is important to look for people who have the expertise your business needs. Find people who can give you a sound advice in your niche or in an area that you recognize as a gap in your team’s business knowledge. Consider these backgrounds when looking for a board member.
- Areas relevant to your industry
- Organizations similar to yours
- Diversity of ages, genders and backgrounds
- A specific job function such as finance or sales
Of course, you should always look for individuals who share your values and whose interests align with those of other stakeholders in the company such as investors or customers. This will help create trust throughout all levels of your organization. More tips on this topic can be found in this article.
Diversity on Your Board
Diversity is a key ingredient to a healthy and productive board. “General George Patton said, “If everyone is thinking alike, someone isn’t thinking.” And the reality is boards that look the same gender-wise and demographically as they did 20 years ago—or even five years ago—are likely to have too many directors who think alike.”
The article in Family Business Magazine that highlighted the quote above also has this to say, “As a family company changes over time, so should its board’s composition. Some of the newer skills in demand are an understanding of social media and other new technologies, as well as experience in emerging markets, cyber security, innovation, global branding, corporate social responsibility, strategic talent and supply chain management. Diversity brings new, relevant perspectives to the decision-making process for boards—perspectives that take into account the latest insights on addressing these newer challenges.”
Finding people of diverse ages, genders and backgrounds, who have the skills you need on your board, can be a challenge. This is a unique executive search area that Centennial specializes in. When you have specific hiring criteria that may be outside of your network, our network and hiring expertise can be the resource that helps you find just the right person.
In What Ways Does a Board of Directors Guide A Family Business?
The board of directors can provide invaluable guidance by offering advice based on their own experience such as helping with succession planning processes as well as offering insight into current market conditions that could affect decision-making.
They may also offer objective assessments around strategic plans or investments while helping foster productive conversations around difficult topics. Ultimately, advisors play an important role in helping owners make sound decisions about their businesses now and into the future.
Board of Directors and Family Business
Having a board of directors can be extremely beneficial for any business but especially for those that fall under the umbrella of “family business” due to its unique structure and dynamics among its various stakeholders including owners, employees and customers alike.
Lastly, it is essential to select knowledgeable professionals when appointing them onto boards who understand both areas relevant to industry expertise while understanding internal dynamics specifically found within family businesses. This way, boards will be able to perform at peak capacity while guiding families towards successful outcomes now and into future generations.