Family Business Importance of Independent Board

A Board of Directors is a group of individuals who are either elected or appointed to oversee the operations of a business and make important decisions on behalf of the business. They have an important role to play in terms of approving the strategic business plans in line with the long-term business direction of the business. Decide for appointment or removal as well as fixing the terms of employment for all key managerial employees of the organization. Ensuring proper governing mechanism for business management including the compliance and reporting of key matters. Work in the interest of minority shareholders and their rights as well as family shareholders in case of a family business. It is critical to have a competent board member which is a mix of family and non-family members to provide the best possible unbiased guidance for your family business.

 

The role of the Board of Directors is to understand what the business is trying to achieve and to make important decisions on behalf of the business, always keeping the best interests of the business in mind. A family-owned business is not always required to have external board members, but successful and future-looking family businesses seek the appointment of experts from different fields who will keep a neutral view and ask dispassionate questions on critical business decisions for their family businesses. Such a board is an invaluable resource for the family business. The board should be given real-time information and the freedom to ask questions which will help in the overall growth of the family business, build its credibility, and create a professional working environment.

 

The board members should also take up the responsibility of grooming the next generation successors as well as mentoring and reviewing the performance of family members holding critical positions in the family business. A competent Family Board of Directors helps the family owners establish boundaries and to create a defined line separating the family dynamic from business operations.

 

Ideal candidates for the Board of Directors

When a family business grows large enough to have a competent Board of Directors, it should have a mix of both the family as well as non-family members. As far as possible the board members should not occupy high-level operational positions in managing the day-to-day business operations – as it creates a conflict of interest and closes the opportunity to have divergent viewpoints.  A good board should also include external members who can give their independent view on the business operations and help the organization build better governance at the Board level as well as at the operational level.

 

Role of Board of Directors

The primary role and responsibilities of the Board of Directors are:

  • Setting and approving the Company’s Business Strategy
  • Approving the Company’s Financial Statements
  • Analysing the Performance of the Company’s Key Managers
  • Give their independent opinion to the management
  • To appoint or terminate as well as to decide on the compensation of top managers
  • Help the organization in building better governance
  • Determining the process for Family Business Succession
  • Manage decisions regarding Family Conflicts related to the Family Business

 

The Benefits of a Family Business Board of Directors

A Board of Directors reinforces family business governance and structure. With competent board members in place, the family can rely on them for guidance on business direction, the appointment of critical positions, managing conflicts better, and setting professional decision-making processes. This can alleviate the stress that is often placed on the individuals tasked with overseeing a family-owned business. The ultimate task of the Board of Directors is to protect the owner group’s interest through sound business management practices that will help the business achieve sustainable growth. The board can help the family in taking unbiased business decisions based on data as well as on business acumen.

 

Should the Family Members be on the Board?

Indeed, to take care of and protect the family’s investment interest in the family business, some family members should occupy the board positions. Not all active family members working in the business should occupy directorial positions. Many times, family members with no active business role in the day-to-day operations of the business can provide invaluable insight into the family dynamic. At the same time, it is equally important to induct non-family members on the board. Ensuring a proper mix of family and non-family members provides the best possible unbiased guidance to the company.

 

Does Your Family Business Need Help?

With extensive hands-on experience in assisting family businesses, we understand the challenges families face as they work together to build a thriving family business generation after generation. Through orientation programs, one to one and group meetings, workshops, public talks, mentoring, coaching, family retreats, and private family business consulting services, we help family business owners chart their way through family business issues of all shapes and sizes.

 

 

To know how our services can help your family business reach its potential –


+9198 2001 4999

+9122 7961 4770
+9122 2541 1214

sandesh@mestry.in

Get In Touch

Sandesh Vasant Mestry
Family Business Consultant and Mentor
101, New Chandralok CHS, Ground Floor, Near, Veer Savarkar Marg, Tembhi Naka,
Thane West, Maharashtra 400601