What are the advantages of a governance structure in the family business?

Business Leader Post, September 5, 2013

Thomas D. Davidow, Ed.D.

It has been my experience that even when underlying family relationship issues have been resolved, disagreements continue when the family members involved lack enough information to make a good decision. Having a Board of Advisors or a Board of Directors gives them access to people who have experience in areas that family owners may not have access to. The best board members rarely answer your questions. What they do is ask questions about issues or areas that you have not had exposure to. It is in exploring the answers to those questions that the necessary information surfaces to provide the family with a significantly more educated solution.

A Board of Directors is a wonderful succession tool. When the senior generation is trying to pull back, part of its challenge is to refrain from “giving answers.” Giving answers slows down the development of the next generation; and if there are two or more members in the next generation, the senior generation’s answers can still be interpreted as family driven versus business driven. In addition, the “collective wisdom” of the outside board members enhances the most important quality that senior members hold: their judgment about business issues that have come from years of experience. The presence of governance can and should provide some comfort that the business and the next generation will be in “good hands.”