Best Practices

The most common method of successfully recruiting a new director involves existing board members and company officers using their own networks and personal contacts to suggest names of possible candidates. Survey results suggest that 65 percent of board appointments are based on board members’ own network or personal knowledge.

One of the key lessons that board members must learn is not to cross the line between governance and operations. The most important job of the board on which you serve is to hire the CEO and hold him or her accountable for results. By crossing the line, you interfere with the ability of the CEO to do their job.

Sometimes it seems easier to leave the running of the family business to professionals who earned their stripes working in the industry. But the most effective family businesses are those where the family, the board and the management form a true partnership. All three do their part in ensuring that the business strategies are being executed and are part of the important conversations taking place in the boardroom.

In addition to general business challenges—like the economy, competition and the need for product innovation—family-owned companies must contend with issues unique to family businesses, such as the need to preserve harmony. But potential family disagreements need not threaten the survival of the business. Early and proactive planning before the issues arise enables family businesses to successfully navigate internal and external pressures.

Virtually every director we speak to strongly affirms that CEO succession planning is their board’s number one priority. And most subscribe to the view that under ordinary circumstances promoting from within is preferable to bringing in an outsider — too much is at stake to risk a cultural mismatch. 

We see more family companies interested in corporate governance today than we did a decade ago, as shown in changes they’ve made to their boards. While some family companies have a board only to satisfy legal compliance requirements, more are moving toward the outer rings on the family business corporate governance model. Ultimately, owners will choose which level best suits the company’s needs and when changing circumstances mean the company’s governance should transition to another ring.

When ownership of a family company passes from a sibling partnership to a cousin collaboration, important decisions must be made concerning design and leadership of the board.

  Imagine a typical family-owned business, started by a husband and wife who, through hard work and sharp wits, built the enterprise and proudly passed it on to their children. The siblings then grew the business through its second generation. Governance? No problem. The owners all worked for the family business, so they were the decision-makers who charted its course.

Global companies—public, private and family-owned—compete with everyone everywhere for everything. Good directors can help companies acquire a competitive advantage in the global marketplace. If a company does only what worked in the past, its directors will wake up one day and find that they have been left behind.

A small to medium-size business that has an advisory board is rare in today’s world. However, assembling a board of advisors may be one of the most important steps a CEO can take to assure the success of the company, giving the business a significant advantage over competitors that rely solely on internal talent.

Private boards can borrow from the public sphere, and use committees to provide specific focus on key issues for the board as a whole.

Bob Holland, Director, Carver Bancorp, Inc.:  â€œIf you can identify resources that can help the company, whether it’s resources or leadership transition or whatever, wherever you would reach outside for expertise, there’s an opportunity for a committee.”