Although it sometimes seems to be a governing body reserved for large listed companies, the Board of Directors is also key in family businesses, especially when they start to grow.
Because its functions include such important functions as directing and supervising the company’s operations, establishing its medium- and long-term strategy and also monitoring and periodically improving it, controlling risks and ensuring the availability of financial resources for both the company and the family.
When is it advisable to set up the Board of Directors of a family business?
As family businesses grow, their management becomes more complicated and people from outside the business family join the company in positions of responsibility. This is the ideal time to set up a board of directors. For example, to prevent non-managing family members from feeling that their interests are being subordinated to those of the managing members.
The basic objective of the family business is to ensure its survival over generations. And for this it needs corporate governance that takes care of both the business and family relationships.
Who should be on the Board of Directors of the family business?
There is no single way to form the Board of Directors of a family business, which must represent the interests of the shareholders, but also understand the vision, mission and values of the family.
It depends very much on the point in the life cycle of the family business. However, it is most common for members of the business family to be integrated into it, if possible belonging to several different generations. In this way, the company benefits from the contribution of different points of view and gradually incorporates the new generations into the management of the business.
In the case of family businesses that integrate different lineages, it is advisable for all of them to have a presence in order to balance power and make them all feel part of the common project.
It is also advisable to include external directors on the Board of Directors who bring their experience in different companies and provide a more neutral and detached view of all the conditioning factors involved in mixing family and business. To guarantee their independence, it is important that they are free to give their opinion without jeopardising their position.
Functions of the Board of Directors
- Define the values of the company, which should remain aligned with the family’s culture, values, traditions and history.
- To look after the interests of all owners, without losing sight of the company.
- Striking a balance between the obligations of the company, the needs of the shareholders and the expectations of the family.
- Ensure compliance with legal requirements.
- Hire, evaluate and dismiss if necessary the general manager.
- Guiding the CEO and the management team in the long term, e.g. by helping them to identify opportunities, as the Board of Directors has a broader view of the overall situation of the company.
- Establish the company’s medium and long-term strategy.
Delegating to secure the company’s future
Setting up a Board of Directors in a family business is a complicated decision because it involves delegating and bringing in people from outside the family. But it is an essential decision for the future of the business as it grows.
For all these reasons, the figure of the Board of Directors must be tailored to each company, defining very well the medium and long-term strategy of the company and risk control. At Confianz we are specialists in advising family businesses, and we are ready to accompany you throughout this process.