A Burst of Fresh Air
By Ernesto Poza
If you're like most family business owners, you thrive on the independence that comes with being your own boss. But there is such a thing as too much freedom. I've met hundreds of entrepreneurs who risk destroying what has taken them decades to build because they are accountable to no one. As owners of small private companies, most of you may not have to comply with the regulations of Sarbanes-Oxley, but you can benefit greatly from one of its principles: having a board of independent advisers.
Above all, a board will help you differentiate among your sometimes conflicting roles of owner/shareholder, CEO, and family member. I recently led a panel of family business owners discussing how valuable boards had been to their companies and themselves. All the entrepreneurs had created boards, not only because their corporate statutes demanded it, but because they knew that outsiders who have a commitment to the company can bring new perspectives, problem-solving abilities, expertise, strategic thinking, and valuable contacts. A board also can act as a moderating, cajoling, professional influence when different family members, and different generations, have conflicting visions of the future. Another reason they appreciated their boards: It really is lonely at the top.
Once you decide to form a board, you'll want to invite the right people to serve. Research on group dynamics suggests that the ideal size of a working board is five to nine people. For a small family business, five members is usually fine. And as the family business owners on the panel made clear, the first person you select is crucial to the success of the group. That person will set the standard for recruiting. You will want to avoid asking friends or any of your company's paid advisers, as they often simply rubber-stamp a CEO's decisions. Instead, ask independent outsiders such as peer CEOs, business school professors, and professionals such as lawyers and financial advisers who derive no revenue from their relationship with your company, other than any fee you might pay them for their service to the board.
It is also critical to set the right tone at your first meeting. The key is to be prepared. Be ready to discuss with your advisers your expectations, and to hear their expectations of you and your team.
Recently, I helped the owner of a small specialty apparel company in the Midwest start a board. First, we put together an information book on the company and the owning family to brief prospective members. The book also contained a draft mission statement and a succinct job description for the board. The owner's first recruit was a high-profile, third-generation owner of a regional supermarket chain with an excellent reputation. Once that man signed on, getting two other outsiders to agree to serve was easy.
At the board's initial meeting, the group worked together to write its mission statement. The CEO reiterated his expectations of the group, and in turn, the advisers said they expected full disclosure and access to key employees and information. They reviewed the company's financial results and scheduled a strategy meeting.
Family company owners often find it hard not to blur the lines between family and business. And in those circumstances, a board can be essential in providing the guidance that will keep the business a business. That is especially true as you put in place the structure that will transfer the business you've built to the next generation. So shed your reluctance to let others assist you in building your company, and in transferring its wealth, jobs, and the freedom it represents to others.
Ernesto Poza is a professor of global business at Thunderbird School of Global Management and director of Thunderbird's Global Family Enterprise Center.