Trend towards formal board of directors in family businesses globally

Formal board of directors in Family Businesses

The board of directors plays a vital balancing role in many businesses, with 52% of the companies canvassed in our 2014 Family Business Global Survey saying that less than half or none of the board is made up of family members. In fact, only a tenth of family businesses had a board comprised entirely of family members.

Team at meeting

In addition, half of the firms said they have a formal governance structure with a board of directors. The other half had a less formal structure, although 20% use an advisory board structure to provide some level of independent input to the company.

Formal governance prevalent in large companies

As might be expected, given the need for more professionalised systems and procedures in bigger and more complex companies, the larger family businesses are the most likely to have a formal board of directors. Over four fifths (84%) of companies with revenues of between US$200 million and US$1 billion have a board of directors.Meanwhile, only 11% of companies with revenues of between US$20 million and US$50 million have a board of directors, with 13% of these smaller businesses using family councils to reach strategic and operational decisions , according to our survey.

In larger companies, the board is also more likely to have a higher number of independent members, reflecting the need for more outside expertise and stronger corporate governance as companies mature.

Emerging markets lead in formal governance

Interestingly, there is a large variation according to the stage of economic development of the markets in which these companies operate. Family businesses in emerging markets are more likely to have a formal board of directors than those in developed markets.

Two thirds of emerging markets businesses have a formal structure with a board of directors, with a further 11 % using advisory boards, according to our survey, In North America, just half have a board of directors, while the proportion was lower still in developed markets across Europe and the Asia-Pacific region.

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