Why Your Family Business Could Benefit from a Board

September 2, 2024

Running a family business is both rewarding and challenging. It involves balancing family relationships with business objectives, navigating complex dynamics, and ensuring the business remains sustainable for generations. 

Family businesses often embody a legacy of hard work and dedication, driven by a strong commitment to both the family and the enterprise. These businesses face unique banking considerations, including selecting the right financial partner, managing generational transitions, and more.

A structured approach to governance, strategic planning, and decision-making is essential to ensuring long-term success and resilience. Establishing a robust board of directors is one of the most effective ways to achieve these outcomes. Here’s how you would go about implementing one. 

Establishing a Board

Begin by verifying whether your family business has a legally constituted board, as many companies include one in their governing documents, even if it remains inactive. Identifying the existence of a board is the initial step toward establishing structured governance, but the board must be both functional and active. Should your governing documents lack mention of a board, this may indicate the need to institute formal governance structures.

In the absence of a board, the appropriate next step is to amend your governing documents to include provisions for one. This process generally involves consulting with legal advisors to ensure that the board’s composition, responsibilities, and authority are clearly delineated.

After laying this foundation, it is advisable to identify potential board members with the requisite skills and experience. These individuals may include family members, industry experts, or independent advisors capable of offering balanced perspectives and providing necessary challenges to the status quo.

Defining the Board’s Role

The primary purpose of the board of directors should be oversight, guidance, and representing the owners’ interests. The board must operate strategically rather than get involved in day-to-day management. This strategic focus helps steer the family business towards long-term goals and sustainability.

Crafting a Diverse Board

While having family members on the board can ensure that their interests are represented, it’s beneficial to diversify the board’s composition. Including members with diverse expertise, such as finance, law, and industry trends, helps address various business challenges effectively. A balanced mix of family members and external professionals brings new perspectives and expertise.

Managing Board Meetings

Regular, but not overly frequent, meetings are important. Quarterly meetings are standard, but more frequent meetings may be necessary to respond to changing business conditions or crises. The board should allow time for strategic discussions without micromanaging. Effective board operation includes setting clear agendas, documenting minutes, and following up on action items to ensure accountability and progress.

Including Independent Directors

Independent directors, often non-family members, can bring valuable perspectives and impartiality to the board. Selecting independent directors based on their qualifications rather than personal relationships is essential. Independent directors can challenge assumptions, offer fresh insights, and help make unbiased decisions that benefit the business in the long run.

Considering a Personal Board of Directors

Consideration of a personal board of directors can be equally beneficial for family business owners. This personal board can offer tailored advice and support on personal and family-related matters, ensuring that personal and business goals are aligned and achieved.

Recognizing the Importance of a Board

A well-guided board can help navigate the rapid changes in the environment, ensuring the company remains resilient and aligned with the family’s values and goals. By fostering a culture of good governance, a family business can thrive and secure its legacy for future generations.

Ensuring your family business has a robust board of directors can steer it toward success, adapt to challenges, and align with family values and strategic goals. By creating a comprehensive business plan that addresses unique needs and aspirations, a family business can be well-prepared to achieve its full potential and leave a lasting legacy.

Commercial banking services offered through First Western Trust Bank, Member FDIC