Is there value to having more than two independent directors serving on a family business fiduciary board?
© The Family Business Consulting Group
We asked some of our top family business governance experts to share their advice and experiences.
In my work, I have found that a board with three or more independent directors regularly:
Generates more ideas
Provides enough in the group for some to play the devil's advocate
Helps the family perceive the board as a real “oversight” body (versus a couple of people in addition to insiders on the board)
Raises the bar for not just other independents, but insiders as well.
Kelly LeCouvie, Ph.D., Senior Consultant
In my experience, the number of independent directors grows as the family and business develop more trust in the process. The value of having more than two depends on:
Who the independents are and what they have to offer.
The receptiveness of the family and executive directors.
The number of other directors. (The more executives and/or family directors, the more independents.)
The roles they are asked to play. With three, you can have an independent chair of the audit, compensation and governance committees. I also recommend only independents on the compensation committee if there are at least three.
Otis Baskin, Ph.D., Consultant
What I’ve learned from our co-founder John Ward is that:
With one independent director, you may not get a balanced viewpoint and robust debate.
With two, the board has a higher likelihood of a balanced viewpoint and robust debate, but can have a 50/50 split with independents.
Three independents satisfy the 50/50 split dilemma. However, if one independent misses a board meeting, you are back to the 50/50 split.
Therefore, four may be ideal but these are only guidelines and specific circumstances should lead the day.
Drew Mendoza, Managing Principal
Based on the research for our book Building Successful Family Business Boards, clients self-reported higher effectiveness for boards that are majority independent than for those with two or more independents. The challenge with two is if one director is not very vocal, doesn't show up for a meeting or ends up dropping out, you are back down to one independent. Often, it takes three to really change the dynamic in the room.
Jennifer Pendergast, Ph.D., Senior Consultant
Almost all the boards I've been involved with in recent years have more than two and most have four. The issue is not the number – it’s the need.
What kinds of experience and skills would be valuably represented on the board?
What are the board committees (audit, compensation and performance, evaluation, governance, HR, strategic planning, etc.)?
What skills and experience are needed to assure committees are effective?
Then ask: How many do we need to cover the territory?
Craig Aronoff, Ph.D., Co-founder and Principal Consultant
The Family Business Boardroom is a quarterly newsletter that provides insights and news on important governance topics. Click here to subscribe...
Articles purchased or downloaded from Family Business Consulting Group® are designed to provide general information and are not intended to provide specific legal, accounting, tax or other professional advice. Since your individual situation may present special circumstances or complexities not addressed in this article and laws and regulations may change, you should consult your professional advisors for assistance with respect to any matter discussed in this article. Family Business Consulting Group®, its editors and contributors shall have no responsibility for any actions or inactions made in reliance upon information contained in this article. Articles are based on experience on real family businesses. However, names and other identifying characteristics may be changed to protect privacy.
The copyright on this article is held by Family Business Consulting Group®. All rights reserved.
Articles may be available for reprint with permission. To learn more about using articles for your publication, contact email@example.com.