Keeping It In The Family?

21 Feb 2013

Keeping It In The Family?

how independent directors add value to family businesses

Family businesses form the bedrock of economic activity around the world.

Family ownership can provide an outstanding foundation for commercial success and long-term growth. Inspired by a sense of purpose and tradition, and largely immune from the gyrations in sentiment and reporting demands that come with a stock market listing, family-owned businesses can think, plan and operate long term.

Equally, however, the relative lack of external pressure and scrutiny can allow family companies to grow complacent, sclerotic and unable to keep pace with changing times.

Likewise, as family businesses expand and enter new markets, and as the reins of control are passed on to the next generation, the skills and experience needed to ensure long-term profitability can outgrow a family’s management skills.

One solution is to appoint independent non-executive directors to the board.

Such directors serve a number of functions. They can heighten accountability, provide alternative perspectives and bring to bear critical experience from a variety of markets and business situations.

They can also act as a link between a non-family executive team, the board and the shareholders, and help to ensure that the overall governance of the family enterprise operates effectively.

But the move towards independent non-executive directors is not always easy.

Discord can arise where non-executives feel marginalised from key decisions, or where communication between family members and non-executives is not free-flowing.

This paper concludes that the success, growth and well-being of a family business is enhanced not just by appointing independent non-executives, but deploying, motivating and involving them appropriately.


Keeping It In The Family?