Vital role of the board in guiding family firms through tough times

Since the onset of the pandemic, the majority of businesses have faced an unprecedented level of challenge that together with Brexit and other economic headwinds, have tested a business’s ability to survive and adapt in volatile market conditions.

As Ireland’s first international board consulting practice, supporting boards in Ireland, the UK and over 20 countries internationally, we have witnessed first-hand the critical role of a board of directors in family businesses in helping the business not only navigate through the storm successfully but in some cases adapt business models, overall strategy and position the business to emerge stronger.

For family businesses and other businesses, a board of directors with experienced high-calibre independent non-executive directors added significant value in the crisis through bringing their “independence of mind”, decades of experience and key support to the executive team as they in many cases, “struggled to see the wood from the trees” as revenues collapsed.

In particular, we found that many family businesses struggled to come to terms with the critical need in some cases to transform their business model, accelerate their digital transformation programmes and make bold decisions to enter new markets. In the immediate weeks and months after the introduction of significant public health restrictions, many emergency board meetings were held to deal with the immediate impacts on the family business in terms of their customers, their employees, their financial position and key operational areas such as their supply chain.

Many family business owners indicated to us that while there was significant challenge and debate in often stressful board meetings, the ability of the non-executive directors to bring their own independent thinking to the table, constructively challenge emergency plans and in some cases roll-up-the-sleeves to help with some critical operational challenges, was instrumental in enabling the family business to make the tough decisions and in very difficult stormy conditions, to chart a sensible course.

Many family businesses have traditionally found it a difficult step to “professionalise the board of directors” and embrace the value of independent non-executive directors.

While family businesses have unique strengths in terms of their deep commitment to a long-term sustainable business, loyalty to their customers, employees and communities, the over-lapping of family ownership, fulfilling key roles in the management team and being board directors brings unique challenges in terms of governance.

In selecting their directors, family-owned businesses should focus on individuals who will add value to the business

One of the key reasons that family business survival rates plummet from one generation to the next, is the lack of a strong family business governance structure that not only enables a highly effective board of directors that adds significant value to the business but establishes the right structures to handle succession planning.

The core roles within a well-performing board of directors are to set the overall strategy for the business, oversee the management performance, and ensure that an appropriate corporate governance structure is in place and functioning effectively.

In selecting their directors, family-owned businesses should focus on individuals who will add value to the business and bring necessary skills in the areas of strategy, performance optimisation and governance oversight.

They should also place significant emphasis on ensuring they have independent directors that can and will exercise independence of mind and diversity of thought to drive the board and management team to new levels of innovation and strategic goals.

One of the benefits that family businesses have found, who have professionalised their board with the addition of independent non-executive directors, is that the board has significantly helped reduce the potential conflicts associated with different combinations of roles, such as family-member/director, owner/family-member/director or owner/family-member/director /manager.

The presence of experienced non-executive directors can help family members to act when in their board role, with independence and with the best interests of the business taking precedence over their personal interests and their interests in their family, ownership or employee roles.

A family business owner, who is a major shareholder, senior management team member and board director, once shared with me his trepidation at “being formally accountable to the board of directors” for his performance. Prior to that, he felt that the board and management team were effectively one continuous entity and the quality of challenge, debate and oversight on performance was often poor as the “board” reverted back into “operations mode” very frequently.

After initially making a cautious step with the introduction of the first independent board director, the family was pleasantly surprised at the level of value added by the independent non-executive director, the constructive approach he took to challenge, debate and oversight, his ability to help the board step back from the focus of the daily operations and supporting the board to take a far more strategic approach to the business.

A key success factor here was also the genuine respect and appreciation the external director had for the family, its values, culture and deep-rooted traditions.

In helping businesses identify non-executive directors for their board, we place a significant emphasis on the existing board members and executive team meeting with a prospective new non-executive director multiple times to ensure that the chemistry is right and there are clear expectations for shared success and values going forward.

In the case of family businesses, this is even more critical, particularly where the family are appointing their first independent non-executive director.

The Covid-19 crisis has highlighted the critical role and value a high-quality board of directors brings to a family business. As family businesses face into challenging market conditions and significant disruption in traditional business model and markets, the board has a fundamental role in helping the business to focus strategically, foster innovation and agility, to ensure the highest levels of challenge, debate and oversight to optimise decision-making and performance and to leverage the strong traditions and values of the family business in putting their customers and employees at the heart of long-term sustainable success.

Kieran Moynihan is the managing partner of Board Excellence, an international board consulting practice, supporting boards in Ireland, UK and over 20 countries internationally and an internationally-recognised thought leader on board dynamics, culture, effectiveness and governance.