Andrew Keyt is president of the US chapter of FBN International and executive director of the Loyola University Chicago Family Business Centre.
Just because you have a board doesn't automatically qualify your business as a structured and well-governed operation. Andrew Keyt offers some pointers on how to ensure the board is run effectively and is the forum for discussion and decision-making it should be
The wisdom of family business boards has long been touted in family business literature. Despite this fact, 63% of family businesses report that their boards meet twice or less each year (American Family Business Survey, 2003). This coupled with a substantial percentage of respondents reporting weak board performance begs the question, how do we maximise board effectiveness after it is created? In a family's rush to create a board of directors, what often gets overlooked is that just having a board is not good enough. In order for a board to be effective, the chair of the board and the family must invest time and energy to create a culture that promotes an environment supporting the pursuit of accountability – a board's core purpose.
A common mistake families make is that they invest all of their time and energy in the creation of the board without planning for its' management once created. In their haste to select independent directors, families overlook the importance of preparing for building the relationships, structure and strategy that supports a culture of accountability. While the steps of creating a board are important, much of the effectiveness of the board arises from how it is managed after it is convened.
The bottom line is that managing a board takes time. In order to properly leverage the opportunities and experience offered by directors, the chairman and CEO have to devote time to building the relationships, structure, and strategy of the board. However, this raises the question of whether the CEO has the time to adequately manage the board and provide accountability to management, while performing their duties as CEO. In this author's opinion, for organisations of significant size, there are very few leaders who have both the time and the capacity to do both jobs effectively.
Once the board is established, the chair is charged with creating and environment that supports the boards' purpose of providing accountability to management for articulating and pursuing a strategy. One of the vital components in this process is the building of relationships and trust amongst board members. Merely selecting directors and putting them in a room together and hoping that they will magically gel, will not guarantee that they will provide value to the organisation. The chair must work to build a relationship with outside board members, the outsiders need to get to know the family shareholders and what is important to them, and likewise, the family needs to know and respect the outside directors. The creation of this culture of trust will help the family see how the directors will represent their mission, and give the directors the understanding that open, productive dissent is possible. In addition, board members need to develop relationships with the management team, be aware of their strengths and weaknesses, and understand the value that they can bring to the growth of the organisation. The challenge is that this doesn't just happen during board meetings, this requires time spent between meetings, on the phone, and in correspondence and communication.
Another item often overlooked when creating a new board is the creation of the structure that will sustain the board and its effectiveness in its work moving forward. It starts with the creation of an orientation process to introduce new directors to family and business. This includes helping them to understand the mission vision and values of the family and the current strategy and pursuits of the business. Next is having a committee structure that supports the pursuit of the strategic vision of the corporation while providing accountability to management.
Also key to board structure is having a clear understanding of how board decisions are going to be made. Many talk about the importance of building towards board consensus, but it is our belief that having an agreed upon voting process can allow for a clearer discussion of the issues, avoiding undue influence of powerful board members, and forcing board members to put their opinions on the table. The creation of agreed by-laws is a key to this process. Assuring expectations of board members and setting board terms so that boards don't stagnate can assure a continuing energy for the board moving forward.
By-laws and board structure lay the foundation, but meeting structure is equally important. Having focused and structured meeting agendas, assuring that directors have the appropriate information for review prior to the meeting, and that the chair is actively facilitating discussions and assuring the input of all directors, is vital to unlocking the hidden power of your board.
Directors also want to feel a sense of contribution and accomplishment, that they are making a difference. To help this process it is important for a family business to establish a process of setting expectations and goals for the board each year. In setting these goals and expectations and creating a structure for evaluating the board's success, directors can better evaluate the effectiveness of both the leadership of the business and the leadership of the board.
Finally, finding time in board agendas to build the board's industry competence is important. This may take the form of site visits to different company plants, it may be visits to customers or suppliers, or spending time at an industry convention to build awareness of the competition.
While we believe that board structure is important, focusing on form over function exclusively, especially with boards, can be dangerous. Merely having outsiders, merely having good by-laws or meeting agendas doesn't guarantee your board's effectiveness. It is also vital to think carefully about your business strategy and positioning these strategic issues in a way that board members can effectively provide their input and aid in decision-making.
It starts by making sure that there is enough meeting time available for discussion of the important strategic issues facing the business. Too often young boards can get caught in the trap of endless reports on the business operations at the expense of really teeing up the important strategic issues. The chair can prevent this by framing any strategic problems, identifying solutions, providing any necessary background information, and creating a forum for discussion and decision-making
Boards are an important tool in laying the foundation for successful generational transition, but too often we focus all of our efforts on the process of the creation of the board, at the expense of the ongoing process of the board that truly unlocks the power and performance of a progressive board. By building trusting relationships with board members, building a strong board structure and process, and effectively positioning important strategic issues, you too can unlock the power of your board.