We have a board. Now what?

In my last post, I discussed the benefits of, and some of the misconceptions around, establishing a board of directors, or a board of advisors, for family businesses. While my hope is that family business owners will consider setting up a board and be eager to take the first steps, I know some readers will be thinking, “We’re covered—our business already has a board!”

It’s no doubt true: Canadian corporations are required to appoint a board of directors. . . on paper. But it’s common for these “paper boards” to be inactive or ineffective. For example, a board may consist only of relatives and lack the objectivity and skill sets needed to move the business forward. While some owners may have checked “board of directors” off the list for legal reasons, this is a missed opportunity. An active and effective board brings fresh, outside perspectives to the business and helps leaders make important, strategic decisions—whether the business is growing, changing, diversifying or transitioning.

For many family businesses, that means the writing’s on the white board: moving from paper to a real-life board is a critical enabler for success. The process won’t happen overnight—it takes thoughtful planning and diligence to assemble and structure a great board—but the outcomes are well worth it. As discussed in my last post, some family businesses are more comfortable with the concept of an advisory board. As we look at how to get an effective board off the ground, keep in mind that the principles are applicable to both an advisory board and a board of directors.

A family business must determine when the time is right to establish a board. The key markers and milestones to look at are upcoming succession events, major transitions and an increase in family-, business- or ownership complexity (for example, share transfers being made to the next generation or a sibling partnership transitioning to a cousin consortium). It can be helpful for family business leaders to reflect on the following questions and their individual goals:

• Will leadership succession occur in the next five years?
• Is your strategic plan focused on business growth and/or expansion?
• Would the current leader(s) of the business benefit from strategic partnerships?
• Will family ownership become more complex in the next five to 10 years?
• Is the family receptive to feedback and advice from non-family advisors?

If the answer is yes to one of these questions, it may be the right time to explore a board. If the answer is uncertain, a family advisor can help guide the reflection process to dig deeper and determine what will work best for the family and the business.

Making a paper board active and engaged requires time and care to determine who is eligible to sit on the board and identify the desired roles and responsibilities of future board members. The job description of board members typically includes:

• Oversee, monitor, and evaluate the implementation of the business strategy.
• Provide ongoing advice and input into the strategic direction.
• Maintain focus on the big-picture and avoid “getting into the weeds.”
• Assess the family business culture.
• Guide leadership in establishing effective succession plans.

This isn’t about finding members who will “fit in” and follow the pack—this will get in the way of making informed, objective decisions. Effective board members have a different mindset than managers and owners. Board members aren’t there to make decisions for the business, but to guide leadership to make decisions through thoughtful questioning and open sharing of their knowledge.

Once a family business is ready to start building its board, owners need to assess their present and future business, and determine what resources they need to succeed. Although the steps will look similar for most family businesses, the structure will be unique to serve the specific needs of the family business. Owners and family members should consider the following first steps:

1. Review the current state of the business. Does it have a strategic plan? How is progress measured? How is reporting managed?
2. Reflect on where the board will deliver value. What are the current gaps in skills, experience and expertise? What major challenges and/or transitions are on the horizon? Where does the business require the most guidance?
3. Identify the desired competencies and composition required. Who is eligible to sit on the board (for example, family members, owners, employee-owners, etc.)? What is the right ratio of independent and family members? How will the board stimulate diverse thinking, approaches and ideas?

This phase of reflection and planning is just the start of establishing an effective board. What’s around the corner are responsibilities like designing a board structure that’s right for the business, developing the criteria for board member recruitment, facilitating board meetings, assessing the effectiveness of the board, and more.

In my next post, I’ll look at how to choose the members of your board, focusing on the skills and competencies they’ll need to ensure they’re able to function as a diverse but unified and, most importantly, effective whole. Hope to see you then.