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One in four US family businesses lacks board of directors, survey finds

More than a quarter of US family businesses questioned in a Deloitte survey do not have a board of directors, and of those that do, the majority lack diversity in terms of non-executives, non-family members and female representation.

More than a quarter of US family businesses questioned in a Deloitte survey do not have a board of directors, and of those that do, the majority lack diversity in terms of non-executives, non-family members and female representation.

The report, Perspectives on Family-Owned Businesses, also found succession planning was a large area of inactivity when it came to governance of family businesses.

Conducted in April, more than 200 owners and executives of family businesses – with revenues mostly between $50 million (€38.1 million) and $1 billion – were surveyed for the report.

Tom McGee, national managing partner of Deloitte Growth Enterprise Partners, said gaps in governance, board operations and succession planning may impact companies’ long-term performance.

“Given that these companies are considered engines of job creation, a sharper focus on governance is important to their longevity, and to the success of [the US] economy as a whole," he said.

Of the 72% of family businesses that did have a formal board, only 39% were controlled by a majority of non-family, non-executive members. Two-thirds of boards had fewer than 30% female membership and 28% had no female representation. Among companies with revenues of $200 million to $500 million, that figure rose to 48%.

"It is not enough to simply have a board," said McGee. "Members of the board must reflect the changing demographics of the world we live in. They should be expected to bring rich and varied expertise and backgrounds to the role, and also be held accountable for their success in guiding the company's growth and future."

In addition, a third of businesses surveyed did not provide compensation for board membership, which the report said could directly correlate to less effort and time spent by board members on matters important to company business.

When it came to succession, half of respondents said they only review their plans when a change in management requires it. Forty-one per cent of businesses did not have leadership contingency plans and 42% of non-executive family members were unfamiliar with succession plans. The report said at many public companies succession is a near-constant focus and the best companies are looking two to three cycles ahead to prepare future leaders.

McGee said: “While succession planning can be an uncomfortable topic for owners, especially founders, it is critical to the success of an enterprise. By creating a stronger governance and succession strategy, a family-owned business is much more likely to preserve the founder's long-term vision for generations to come." 

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