Summary:
· Top 5 Reasons Owners Do Not Create A Family Business Board
· Top 5 Reasons To Consider Creating A Family Business Board
· The Unique Design of Family Boards
· Benefits Of Separating Management and Governance
· Schedule Your Free Consultation with a Family Business Specialist
Even well-designed family boards can disintegrate into chaos and ineffectiveness when the psychology of the family system runs rampant. Orange Kiwi Consulting has seen firsthand the power of highly impactful boards that work in the best interests of the business and the family. They are particularly helpful with the most challenging transition, generational succession. To identify the fine line between board dysfunction and health, families benefit by taking time to explore their family dynamics and the needs of the business before deciding what board structure fits best.
This collective time of discovery lays the foundational knowledge and insight needed for both the business and family to establish, maintain, and thrive within the chosen board structure. Without this first phase of exploration, significant psychological undercurrents within individuals, the family system, and the executive leadership team, will likely sabotage the execution of important governance oversight.
Top 5 Reasons Owners Do NOT Establish a Board
1. Paradox of Success: Owners mistakenly believe, “We've been successful without a board, we expect to be successful in the future without making a change; we don't see the need for a board”. This paradox creates a ceiling for ideation, eliminates new ways of doing and being in the industry, and limits the vision for what necessary for the future of the business.
2. Underdeveloped Organizational Structure: Operational and governance decisions are made by the same person(s) - usually the owner - without a mindful understanding of when they are making which type of decision. Formalizing separation of management and governance creates leadership clarity and intentionality for the owner(s) and the management team.
3. Fear of Bureaucracy: Family business owners have pushed through complexity and barriers to growth, often relying on personality, dogma, and sheer force of will. Adding a board requires the owner(s) to change how they lead. This can trigger latent and hidden psychological roadblocks both individually and as a governance team. At the start it can feel confining and difficult, but overtime creates freedom, alignment, and excitement for what is coming next.
4. Lack of KASE: As a family business grows, so does complexity. Homegrown talent offers tremendous value to the business through loyalty, extensive tacit knowledge, strong relationships, and commitment. Absent intentional, ongoing learning and development the team becomes the expert at doing business one way - the family's way. This causes the family to miss out on critical learning and professional development needed to grow the business beyond certain predictable barriers. Additional talent can add knowledge, ability, skills, and experience (KASE) that the family is unable to attain while running the business.
5. Contagion Effect: Owners swap stories of dysfunctional boards that tried to take control, were a waste of time, failed to produce results, or a host of other negative effects resulting from poor design, ineffective board member selection, and/or inability of the owner/leaders to adapt to new ways of working. These stories fuel an owner’s desire to avoid falling victim to a toxic board structure.
“Adding a board requires the owner(s) to change how they lead.”
TOP 5 Reasons To Build A Board
1. Continuity and Guidance: An effective governing board can provide a sustainable, agile set of guiding principles that are well documented and kept in the forefront for all major business decisions. While roles will change as the company grows, business continuity throughout market cycles is better because governance keeps their eye on the horizon for threats, risks, opportunities, and steering the business into safe waters as they set direction and pace.
2. Preserves the Family’s Vision: As generations change, a well-established family board preserves the family’s vision across generations. Over time, new generational needs and wants will emerge, shifts in KASE from one generation to the next create gaps, and the expansion of the family tree creates complexity. The family board helps current family leaders navigate these stormy waters while creating clarity about business participation expectations into the future.
3. A Cure for the Tyranny of the Urgent: The design of the board gives members the opportunity to lift out of the day-to-day grind of management duties and into higher level thinking. The ability to get out of “firefighting” mode by assessing root cause for continued flare ups allows more effective problem solving and is critical to long-standing family business success.
4. Generates a Clear Path for Family Succession: Families that participate in governance, experience a long glide path to succession; enabling training, development, clarity of expectations, and “intuition” about the workings of the business that a typical employee may never fully grasp. The younger generations are exposed to the language, culture, and significance of the business while having the freedom to question, learn, and explore their options.
5. Improves Business Performance: High functioning family boards improve output, attract new talent, and capture opportunities more often than businesses that forgo a board. Simply put – family boards focus on the data and measurements that have the greatest impact on growth and sustainability. Focusing on governance can alert the organization to an incoming shift and empower operational managers to respond more quickly. This oversight keeps the business on track, improves adaptation to new technologies, prepares for down market cycles, and takes advantage of hidden opportunities; all of which help businesses stay ahead of the curve.
The Unique Design of Family Boards
While there are design frameworks common to all board structures, family businesses have a unique opportunity to adapt structures to meet their specific family and business dynamics. This “sky is the limit” approach means that families can decide what works best to establish clarity of purpose, composition, timing, and expectations for family/key leader participation. Then establishing written documentation that guides both employees and family members to confidently share thoughts and ideas in a safe environment. Below are a few design approaches to ignite a family’s thinking when it comes to board creation
Family Only Boards: these boards ensure control of the company remains in the family. Important considerations with this style of board are:
1) Career and leadership development needs across generations
2) Creating room for younger family members to develop autonomy while participating on the board
3) Developing a succession strategy that will best serve the family and business.
4) Creating documented guidelines and values that drive long-term decision-making.
Advisory Boards: from time to time, the family may need additional skillsets to support success, making an advisory board a great place to infuse outside professional advisors within the board structure, elevating the knowledge, skills, and experience of the family members. Decisions made by an advisory board are non-binding on the family or management. The Family controls the voting rights while gaining more technical expertise about the decisions needing to be made.
Professional Boards: as time moves forward, the family may decide the business is ready for a professional board of directors that work with, and report to, the shareholders. This arrangement may provide the expertise needed to oversee the evolving business needs. Professionals holding these board seats must hold the perspective of a fiduciary, serving the best interests of the family and business while setting aside their personal agenda.
Culture is Critical
Building a healthy culture is critical for all three board formats. Ensuring family dynamics are considered as part of the board design will improve outcomes significantly. Building a healthy culture during the board design phase fosters the clarity and confidence needed to interact in a psychological safe manner.
“Building a healthy culture during the board design phase fosters
the clarity and confidence needed…”
While family systems generate rules about interpersonal communication that works within the family dynamic, these same unspoken rules may generate conflict in the business and on the board. This is particularly true as the family ages and multiple generations enter management or ownership. Generational change leads to new priorities, expectations, and complexity that must be accounted for to ensure the long-term sustainability of the family and the business.
Key Benefits to Separating Management and Governance
In family businesses, the family’s culture often strongly fuses with the business. This union has far reaching implications that create role confusion, a lack of clarity around decision-making, a perceived sense that family members should always behave like owners (even when they report directly to an executive), and a convoluted understanding of how non-family management participate in the company. Taking the time and energy to create clear lines of separation can overcome these challenges.
· Family owners and practitioners gain mastery over their power style by role shifting; honoring their executive or managerial boss during day-to-day activities, while expressing their ownership voice during governance meetings.
· Role clarity can smooth meeting rhythms and accelerate decision-making while drawing the family together in love, understanding, and support. When the family has clarity, outside advisors, key non-family executives, and non-family board members operate more effectively.
· Non-family members gain insight into how, where and when to communicate various needs.
· Creates the opportunity to address “firefighting” issues while continuing to have space and time to strategically move forward.
If you have established a family board but, are struggling to capture the joy and success you envisioned, then contact Orange Kiwi Consulting to begin a conversation. Are you thinking about the formation of a board, but not sure if the time is right?
Orange Kiwi, LLC specializes in Family Business Consulting during times of significant transitions of scale, sale, and succession. Dr. Allie Taylor is a Business Psychologist whose award-winning research has shaped the firm’s approach to the deep end of business transition where complexity, conflict, and confusion are the norm. Together with her team of expert consultants the Orange Kiwi team helps owners navigate the conditions and circumstances that cause others to fail.