Selecting and electing family members for governance roles: Why the ‘right’ choice may not always be the obvious one
Should you select family members for governance roles based on which family branch they belong to or which generation? Should you choose them based on their qualifications or how well-respected they are within the family? These choices come with benefits and disadvantages – in this short article we attempt to disentangle them to provide business families with actionable advice.
Family members in governance: The good, the bad, the ugly
Family members serving in governance roles – both on the family and the business governance side – can be an incredible asset to the family business system. They (ideally) have a deep understanding of business and family values, culture, and history and can provide guidance and oversight that aligns with the past as well as the shareholders’ envisioned future. They signal to stakeholders inside and outside of the business that the family is involved and invested, there is continuity and stability, and a desire to maintain the legacy.
Sadly, this is not always the reality. When the family lacks a transparent, rigorous, and sensible process to identify, elect, onboard, monitor, and develop family members suited for governance roles, things can get messy.
We’ve seen families that select family members for governance roles because of the influence these individuals hold over (certain members of) the family, because they are members of a certain branch or generation, or because they are ‘squeaky wheels’ the family tries to silence by giving them a role. But when such individuals lack the competencies necessary to successfully perform their role, or they pursue their individual interests rather than collective objectives, their involvement likely does more harm than good. They often move the family towards unresolvable emotional conflict and away from family achievement and family unity.
So, what are some keys to making the best decisions regarding family in family and business governance roles?
Family members in family governance
For family governance, the family must first become clear about the purpose of its governance system (recognizing that family governance serves multiple purposes), since the purpose often determines the selection and election process for family governance roles. So, if the primary purpose of your governance is to foster unity and alignment among family members to ensure continuity, and if family conflict is low, you’d select those that are most energized and qualified to support the family into the future. However, if conflict is high, you want to look for the people who have the most trust, and the ability to mediate conflict, whether it is within or between the branches. For their job will be to change the family from one where family members are skeptical of one another to a family where the benefit of the doubt prevails.
Once people are elected – ideally following a transparent and systematic process that the family has agreed to – you want to handle them the same way you’d handle non-family members in business governance roles. This means evaluating their performance, giving them feedback, establishing term limits, and holding them accountable. This is best achieved when there is a regular family governance review process, where you assess structures, processes, and people.
And don’t forget that family governance should be an ever-evolving thing. The needs of the family should be continually assessed and the structure of governance as well as the composition of those who govern be evaluated for fit with needs and goals.
Family members in business governance
Family on the board can be an enormous benefit. Trusted family members often cause family to trust the business and its leadership, reducing friction and enhancing business success. Family members who live the family values and sense of purpose can energize leaders and associates throughout the enterprise. And last but not least, talented family members with deep business acumen can serve as a line of defense against any unscrupulous behavior by others and serve to keep all stakeholders acting with integrity.
Yet without clear standards and review processes, family conflict can permeate the boardroom, distracting leaders from achieving goals and causing anxiety and feelings of uncertainty throughout the organization. This behavior often leads to a self-fulfilling prophecy that “our leaders are not up to the task.” We all know that business is a hard race to run, and improperly or selfishly motivated or prepared family members tugging at the board’s shirt makes it that much harder.
Traditionally, families are told to put family members on the board for ownership representation purposes, as if a board were a diplomatic playground. That implies that there are natural conflicts between branches, which is already a terrible starting place for a family in business together. Business continuity and success hinges on family cohesion so family are well advised to take a one family view of the family for involvement in the business purposes and not a ‘family of branches’ mentality. So, while many families practice putting family members on the board to represent their family branches, we recommend that this be an interim step as you move towards a ‘one family’ mindset.
As the work of family governance builds unity and understanding that the family is best served by having qualified members on the board, owners should focus on developing appropriate criteria for family board participation. During the move to board composition based solely on competency, some families find it useful to prioritize family trust for board participation. Eventually, and with hard work and discipline, trust and unity build to the level where competency can take precedence over family dynamics.
At the top of the list of qualities needed for board member in a mature family are candor (the willingness to receive and give honest and unvarnished feedback), sensitivity to and knowledge of family dynamics, a basic understanding of managerial finance and financial statements, experience in building unity, and experience in business and on boards. Last on the list are individual competencies needed for business development and growth such as digital transformation, strategy, human resources, and so forth.
Take-aways
Understand where your family is and what it needs: Factors such as level of trust, your family’s ability to communicate, or a strong branch mentality determine which family members are most suited to serve in family or business governance. A family with a strong branch mentality is best served by slowly moving away from branch representation on the board or the family council - trust among the branches needs to be built before people feel comfortable letting a family member of another branch decide for them. It is not always the most competent family member (at least on paper) that is best suited to serve in a governance role.
Question your motives: When you identify and select family members to serve in a governance capacity, make sure you challenge your intentions. Are you giving in to the loudest, most inconvenient voice (be careful - you may be handing them a megaphone!), are you trying to appease a family branch or a certain family member, are you trying to fill a competence gap (that should potentially be filled otherwise)? Selecting a family member for a governance role sends a signal, so make sure the signal you are sending is the right one.
Define a process and stick to it: Whatever process you follow, ensure that your family members are fully aware of it and (at some point) have agreed that this process is the right one. Transparency is key - it needs to be abundantly clear to everyone what things qualify one to serve in a governance role, what the process of identifying and electing or appointing family members to governance roles looks like, what term limits are, what is expected of the individual roles, and what happens if a family member is to be voted off the board or the family council.
Encourage accountability across the board: We can only hold people accountable if they have agreed to certain objectives. Oftentimes, however, objectives for governance roles are not clearly defined, particularly for family governance roles. Making sure that the family knows what is expected of family directors and council members and demonstrating that these individuals are held accountable to deliver on their commitments, builds trust and sets an example for both the organization and the family.
Develop governance competence: If you want family members to be motivated to take on governance responsibility, and to become competent to successfully perform those roles, you must make sure they have access to appropriate education and experience. Besides more formal educational sessions on the responsibilities of owners and stewards, and the roles and responsibilities of governance bodies, these educational experiences can range from observation programs for the board of directors, serving on a board or family council committee - standing or ad-hoc, or getting involved in planning the annual family retreat.
While the tasks of installing, evolving, and assessing governance systems, as well as ensuring competent family members to serve in such roles, seems gargantuan, it is well worth the effort for family harmony, individual happiness and fulfillment, and business prosperity. If you are still reading this, you clearly care about your family and business - and that bodes well for success. Don’t delay.
