Effective board procedures
Family businesses often take an informal approach to governance. Directors and shareholders are the same people, decisions are made where and when required and owners are wary of introducing greater formality for fear that this will reduce flexibility and speed of decision-making.
While this approach may work for a business which is in its early stages there are good reasons why it doesn’t work for more established businesses, including that:
- the business comes to rely entirely on the knowledge of a few people (making risk management much harder)
- there is no record of decision-making or the information on which decisions were based
- the process lacks transparency for other members of the business, such as employees
- it paints an unprofessional picture to the outside world (for example lenders may want to see board minutes and evidence of good corporate procedures)
- it requires the owners to be constantly involved in the day to day running of the business, with little time to step back and make strategic decisions.
A more structured approach to board proceedings will allow delegation, greater clarity and better business continuity in the event of an unforeseen absence. So where to start? Initially it is worth thinking about:
- timetabling regular board meetings, with a system for circulating papers in advance and detailed minutes of the meeting afterwards.
- delegating responsibilities at board and management level
- consider whether the board could use additional input from a nonfamily member (see below)
- formalising risk management within the business, ie recognising the key risks facing the business and putting time into planning how those risks will be addressed.
Early stage family businesses are wary of non-family involvement for fear of interference and disturbing the unique character of their business. However, a good non-executive director can add huge value by bringing knowledge, sector experience and contacts. Moreover a non-family director can bring impartiality and perspective to decision-making, simply by being independent from family politics. For example, a trusted non family director can assist in deciding remuneration policy, mentoring younger family members and helping to assess those best suited to assume management roles. Where this decision making is backed up by policies (eg a remuneration policy, and a fair and equal system of performance appraisal) this can help to release the head of the business from the stress of being asked to justify decisions which some members of the family or the business may otherwise complain are unfair.
It is hugely important to find the right person to take up a nonexecutive role, ie someone you like and trust, but you don’t have to commit long term. A potential non-executive director can be “trialled” on a short term basis to see how they fit into the environment and can be removed as a director at any time.