So much is written and said about what it means to be an effective Director. However, most are with listed organisations in mind. We aim to readdress the balance with this three-part podcast series on family-owned enterprises. In the first episode, we looked at “The role of boards in family-owned enterprises”. In this episode, we will focus on how to become an effective director in family-owned enterprises.
In this podcast, Dr Sabine Dembkowski, Founder and Managing Director of Better Boards, discusses this issue with Martin Roll, a global expert on family business and family office topics, and a world-renowned C-level advisor and business school educator.
“As much as you can observe governance, it's a little more irrational in nature”
Martin begins by pointing out that being an independent Director on a family business board is the same as being on a listed board, but a few things need to be viewed very differently. Most important is to recognise that in family-owned enterprises more emotions are involved and therefore governance can be “a little more irrational”.
“You need to care for the business family and the legacy”
Martin explains that an outside Director needs to be motivated, enjoy the industry, and have the right fit and skills, but also to have some kind of chemistry with the family. The advice given to the board may be different than to a listed board, as a family business board needs to take a more long-term view, because business families often have an intergenerational time horizon, whereas on listed boards the view is weeks, months, or quarters.
“I’ve got a title like God, I'm sitting on the board”
Martin explains that the initial fit of an external Director to a family board must be done in a professional way, with proper due diligence. With more emotions involved, external Directors may become more entrenched in family and succession. He cautions that there are possibly also cultural differences, such as gender, or status issues (“I got a title like God, I'm sitting on the board”) and informal influence.
“You will very quickly potentially get sucked into family matters”
Martin explains that not only does an external director bring good practices and their own experiences to the table, but also high ethical standards and integrity. But also, with close proximity to the family owners of the business themselves, one may very quickly get sucked into family matters, even personal or very intimate ones, so it is necessary to keep an arm's length relationship.
“Be attentive to but not biased by the business family and the business family matters”
Martin makes the point that external Directors may find themselves working for potentially a very wealthy, very influential, maybe even a very famous family - and doing it in the local society, region, or country. This can be intimidating. But an independent Director is independent, and must bring an outside perspective.
The three top takeaways from our conversation are:
1. Independent directors bring huge value - governance structures, best practices, industry experience, and a life outside the family business.
2. The influence of the business family, the complexity, and sometimes navigating tensions and emotions is the fun part of it.
3. Entrepreneurship is deeply embedded in family enterprises – it is why they are successful, often across generations.