In my previous blog entry, I discussed the advantages of having independent representation on the board of a family business. However, for an independent board to be a valuable asset to the family business, the right people need to be in place. While it can be difficult to select the right candidates for your board, it is ultimately a rewarding experience once you do so. The following are some of the keys to establishing an effective independent board:
Commitment to the Process
Commitment is the most important element in establishing an effective board. Finding the right person in terms of experience and personality are critical. They need to be trusted by the family but independent enough to be critical and objective. Both the family and the potential board member need to understand the reasons behind board development.
Proper Identification of Key Qualifications
The shareholders, in conjunction with senior management and the existing board, should carefully identify the skills, experience, and knowledge they are looking for in independent director candidates. Again, look to your customers and other leaders in the industries you serve for potential candidates. My family business always looked to existing well-established customers, commercial bankers and even lawyers as great sources of candidates to help us process and make good strategic decisions.
Sincere Understanding That Roles and Relationships May Have Changed
The shareholders must understand that their roles within the governance process now include their relationship with the board and independent directors. The “family structure” needs to understand that nothing remains constant. Customers and suppliers will come and go, and even family members sometimes. Everyone needs to be involved in the process, and good communication protocols need to be established to ensure nothing falls through the cracks.
Yes, this may feel like a tremendous amount of work, but research and experience tell us when family businesses invest in a professional governance structure that includes independent, outside directors, they experience optimal returns both financially and in terms of family harmony.