By: Prof. Enrique Soriano
NO DOUBT, leadership and competence will ensure the survival and continuity of any business. And an authentic, competent board or executive committee (ExCom) must be the platform(s) to enable future successors (family members or professional executives) to embrace the concept of corporate governance and integrity on decision making.
Have an Authentic, Working Board or ExCom
Having a real working board/Executive committee should be in every business owner’s to-do-list. I do not know of any business enterprise that became sustainable without the oversight and direction of a board comprising objective and impartial decision makers. Even non for profit organizations have a working board!
For family owned businesses, an authentic board is a powerful antidote to avert the next generation curse, punctuated by the Chinese version, “From peasant shoes to peasant shoes in three generations”, and highlighted by an even more striking Mexican version, “Father-merchant; son-playboy; grandson-beggar”
It is therefore important that family members be acquainted this early due to the fact that family dynamics (unconditional love, equality) naturally encompasses management (performance, meritocracy) and ownership (stewardship mindset) interests. Initiating a board comprising a mix of family and non-family members can accelerate the governance process minus the emotional baggage.
Directors or Advisors must be highly Qualified
Appointing non-family directors or advisors in the Board or ExCom far outweigh the concerns that owners feel when adding them to their boards. It is not unusual for owners to resist having non family members and the reasons are highlighted below:
- Owners have no experience having non family members as part of the decision making process plus the family member’s limited knowledge on how to separate Ownership and Management
- There is the perception of losing control and the issue of sharing confidential information with outsiders
- There is also the perceived cost of having a Board and the Ignorance of family members on how a real board or ExCom operates
I don’t blame owners if the closest non family member they can field in the Board are schoolmates, club friends or those individuals who may have a long history of personal friendship with the owner. This set up is very common in Asia and initiating change by way of incorporating a Board and or ExCom can be a good exercise to start governance.
Having qualified and impartial directors is key to growth. They provide very valuable contribution to any major decision making where the business is solely influenced by the controlling shareholder. The first value these non-family board members can provide is to align the vision of the founder(s) and the goals of the company. When making critical decisions, non-family members’ interest can always singularly focus on what’s best for the business.
There is an old adage, “what’s best for the family may not necessarily be best for the business.” A good example is when family members decide under the pretext of a board decision granting them a bigger dividend share at the expense of reinvesting the excess earnings in a new factory. Any inordinate financial decision can have dire consequences.
Second, the objectivity of non-family directors during board meetings will spare directors/family members from making irrational decisions naturally moving towards personal or branch related interests. In a board comprising an all-family member cast, it can be quite a challenge reaching an agreement on major decisions. The only exception is when the leader is still around to break any deadlock. But what if the leader suddenly falls ill, becomes incapacitated or dies? How prepared is the family in making the right decisions without polarizing other siblings? One poor decision by untrained family members in the board can set back the growth of the business and put family relationships at risk.
In summary, it pays to have a non-family and impartial director or advisor who will:
- Help minimize potentially damaging problems
- Impose and institutionalize the observance of clear boundaries
- Be effective in creating a line demarcating family issues from business matters
When everyone in the organization is aligned and geared towards growth by way of a real Board and or ExCom, my New Year’s wish related to creating a solid decision making process can be crossed out. A great new year to everyone!
Prof Enrique Soriano is a World Bank/IFC Governance Consultant, Senior Advisor of Post and Powell Singapore and the Executive Director of Wong + Bernstein, a research and consulting firm in Asia that serves family businesses and family foundations. He was formerly Chair of the Marketing Cluster at the ATENEO Graduate School of Business in Manila, and is currently a visiting Senior Fellow of the IPMI International School, Jakarta.
He is an associate member of the Singapore Institute of Directors (SID) and an advisor to business families worldwide, a sought after governance speaker at conferences, and book author, more than 200 articles and publications, including two best-selling Family Business books (Ensuring Your Family Business Legacy 2013 and 2015). You can read Prof Soriano’s business articles for free at www.Faminbusiness.com