The Value of Non-Family Members on Your Board of Directors
I wish it were routine to ask a family business owner about their board of directors and get the kind of answer that leads to lasting success.
It would go something like, “Oh yes, we have a great board. We deliberately brought in people outside the family, and they gave us sound advice. We meet quarterly, we compensate them for their time, we arrange all their hospitality, and even some entertainment once business is concluded. They are vital to our success.”
Instead, most of the answers I get when I ask are blank stares. Deer in the headlights. Or, if they’ve attempted it, some owners tell me, “Yes, we have a board. I’m the chairman, my wife is the secretary, my three children are the voting members and we brought one of my sons-in-law in as well.”
This is not a recipe for success. As we say in the South, if this is how the board of directors looks in your family business, you are “cruisin’ for a bruisin’.”
We’re mainly going to talk today about rules of engagement for a corporate board. If you’re more curious about the nuts and bolts of how one should function and regulate a family business, click here to learn more.
I want you to understand the risks and rewards – first of all, of having a board versus not having one. I’ve come across far too many family businesses facing collapse, bankruptcy, divorce or estrangement because of failures in leadership. You might think they center around communication. But you can be a very caring, sincere and effective communicator, and still make poor decisions if you have no one holding your feet to the fire.
Secondly, I want you to see the danger in doing business “too close to the chest.” It’s a lot to ask those closest to you to act as your impartial observers and advisors. How could you expect your spouse, children, parents or other close relatives to ignore obvious weaknesses? Especially if those weaknesses have ever caused strain in your relationships?
As family business owners, we need to play this card, and play it wisely. Click here to schedule a FREE 30 Minute Virtual Review of your Family Business Needs. Make the Rest of Your Life the Best of Your Life.
Why Outsiders Make Great Advisors
I’ve belonged to several mastermind groups over the years. Some of the best things you can have in life are unbiased, outside advisors who care about you and your success. But for me, these men/women live mostly in other parts of the country. They aren’t in my neighborhood, or among my immediate social circles in Nashville. It doesn’t need to be different for you.
A lot of family business owners hear the word “outsiders” and think of “complete strangers I’ve never met.” I understand the interpretation, but that’s actually the furthest thing from my mind. Let’s agree instead, for this blog, to the idea of “unbiased people with whom you have a strong, trusting relationship.”
Now, you might read the next part of this and think, “Well, of course. That’s common sense.” But common sense, I’ve found, isn’t so common. That’s why I feel compelled to write about the subject.
There are so many facets of running a business, you’re bound to run up against a brick wall in one category or another. Do you have modest skills with finances? You’d do well to have a CPA, financial advisor or CFO from a non-competitive outside firm on your board. Do you struggle with operations and administration? You might do better if one of your board members was a former CEO or chief operating officer of a non-competitor company.
Here’s an even bigger reason we’re NOT supposed to talk about – our own pride and ego.
When you run a business in isolation, most of what you hear in your head are your own thoughts. You might not think of it this way...but by yourself, the only thoughts that penetrate your decision-making are those you choose to think about. Even though you might say, “Well, I read the news and a lot of blogs,” that doesn’t translate into broadened thinking. For that, you need to subject yourself to scrutiny and examination by other minds.
I often look back at my prime, peak earning years in my thirties and forties and think, “I was a bull in a china shop.”
It has only been in the last few years that I have looked back and wished I could have brought meekness into my relationships. By “meekness,” I don’t mean “weakness.” I mean “quiet strength,” kept within healthy boundaries by the counsel of people much smarter than me. These days, I don’t do business without it.
If you’re starting to see the importance of what I mean, but you aren’t sure where to begin, the Tennessee Center For Family Business can help. Click here to schedule a FREE 30 Minute Virtual Review of your Family Business Needs. Make the Rest of Your Life the Best of Your Life.
How To “Board Up” Your Family Business
I believe all good business begins with clarity on your values, vision and mission. If you have that, you’ll have an easier time identifying and recruiting people to your board. We’ll assume, for this discussion, that you know who you are, where you’re headed and whom you serve.
The next best thing to do with assembling your board is sell them on the values, vision and mission of your company. It needs to resonate with them, too.
You could recruit a board member with outstanding financial skill…whose mindset is based on scarcity or traditional, bottom-line entrepreneurship. If your values run in a different race, where profit is balanced against the importance of people, you may find that kind of board member more adversarial than necessary.
If you clear those hurdles, the third most important thing for your board is establishing a rhythm. You need to reach some kind of agreement with them that makes it “worth their while” to participate. I’m not talking about compensating them for their time; you should do that anyway. But remember: if you never listen to the board’s advice, they’ll eventually stop giving it. Advising you will become a waste of their time and energy, and the money won’t cover the damage.
In other words, if you agree to a schedule of meeting quarterly (which I recommend), you also need to agree to timelines that give everyone an opportunity to evaluate results. Let’s say you agree with the board, at your January meeting, “Here are our personal and corporate goals for the first quarter.” They lend their support by making recommendations on how to succeed and agree to evaluate outcomes when you reconvene at the end of March.
You can’t leave that meeting and then unilaterally change the agenda because you feel differently a few days later! You know the old saying… “Sometimes you feel like a nut…sometimes you don’t!” Well, it’s true for dealing with boards as well. They’ll be committed to you if you’re committed to them.
You may be saying Greg, this seems so hard. And my answer is “It is.” That’s why most successful family business owners make establishing effective governance a priority. Without building operating boundaries, your business will become vulnerable. There are circumstances like the pandemic and the ensuing recession in 2020 that none of us can control. Creating internal operating guidelines is one thing we can control to give our family business the best chance of success.
No use waiting!!! Click here to schedule a FREE 30 Minute Virtual Review of your Family Business Needs. Make the Rest of Your Life the Best of Your Life.
