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Why Serve on a Family Business Board

When family businesses consider adding non–family members to their boards, one of their first questions is “Who would want that job?”  Sometimes, they can only see the negatives. The position requires a lot of time for little reward. Board members who are not familiar with their industries and companies will need to dedicate time and energy to orienting themselves.  And, worse yet, they may have to deal with family issues that affect the business.

Despite these drawbacks, many families are surprised to learn that well-qualified directors who can make strong contributions to their businesses are interested in serving on family business boards.  So, what motivates these directors?

Over the past four years, I have had the opportunity to help more than a dozen family firms identify outside directors for their boards.  In discussing the opportunity with potential board members, I found that they cite a number of reasons they are interested:

  1. Respect for family businesses – Directors of family businesses choose this role because they believe in family businesses and the contribution they make to the economy and individual communities.
  2. Opportunity to learn – While the director’s role is to provide knowledge, most directors learn on the job as well.  As one director explained to me, “Being a director helps me sharpen my saw.”
  3. Opportunity to apply lessons learned in another context – Many directors take a position in a company that operates in an environment similar to their own.  They add value to the business because they can share the lessons they have learned.  They appreciate the opportunity to utilize these lessons in another context.  A director candidate told me that he would be pleased if he could help another family avoid the mistakes his family had made.
  4. Opportunity to interact with other board members – The old adage “It’s lonely at the top” was coined for a reason.  Business leaders often have a limited set of individuals with whom they can share experiences.  The boardroom is a place where a group of smart, seasoned executives can compare notes and leverage the experiences of others.  For this reason and others, we strongly recommend adding multiple outsiders to a board.  The outside board member will be much more excited about joining a board where he or she will be in the company of other strong board members.


Noticeably absent on this list are the prestige of the position and pay.  Unlike public companies, family businesses typically do not publish membership of their boards (unless they are publicly held).  So service on a family business board may go unrecognized outside of the company.  Family business boards on average do not pay as much as public company boards, particularly when compensation in stock options from public companies is considered.  Typically, they pay nowhere near the going rate for their directors’ time (as measured by what the director earns in other roles).

Lest I paint too rosy a picture, it is important to note that not everyone is interested in sitting on a family business board.  Some people are put off by the potential for family conflict.  Others are concerned that family businesses may operate less professionally than other businesses, so their ability to add value will be limited.  As in any recruiting situation, the key is to find the individual who is the right fit for the position.  So, if you are considering someone to serve as an outside director, ask the person why he or she would be interested in serving.  And if you are searching for candidates, look for people who appreciate family business and are lifelong learners.  I guarantee you will be surprised to find how many well-qualified candidates would be honored to be considered for a seat on your board.

 
 

 

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