Developing a board of directors for the family business
Watch Dr. Joseph Astrachan, who teaches family business at Kennesaw State University, as he suggests a step by step process to develop a Board of Directors for a family business. In a family business, it is beneficial to develop a a form of governance as soon as possible. Governance plays a key role in a family business when the business begins to mature and the development of ideas slows down. A system of governance in a family business is key to its long-term success.
Addressing the question of when governance should first be put in place, I always tell people as soon as you can do it. There is never a time that is soon enough. You can do it when the business is just being thought about, you can do it when the business is just starting, you can do it at any time, and the sooner, the better. Although, you will have more impact long-term from governance as the business matures more. Because there is so much going on in the early days of business, it is hard to keep your head above water and listen to other people. Later on when things start to slow down or it is hard to come up with a rejuvenating idea, governance plays an important role, in kind a very critical role.
For the business side of governance, the way you start that process is you first need somebody to champion it from within the business and within the family. So, if you have one person that is in both roles, that is okay too. They become responsible for developing the governance system which is a careful mix of going back and forth between here are some options, presenting options, and getting feedback and developing more and more of the options yourself. And also at the same time getting buy-in from the important constituents. The key people to be involved would be whoever are the family members who are most involved in the business. They need to champion it. And then when you are putting the rest of it together, you have the owners and the non-family managers, and family managers as well, involved in the process of putting it together.
The first thing that one needs to do is develop what is called a board book. A board book contains all the relevant information about the business, the industry, the owners, people in the business, the customers, the suppliers, sources of credit, sources of capital. Some people, with the board books, do not have all the material needed, so they have to develop it. And sometimes it takes longer than a few months to put a board book together, sometimes it might take a year or over a year.
Once the board book is developed, then we get the people who are really concerned, either the senior management and/or the senior family members together and say, “Okay, now let us develop a profile of what we would like board members to look like.” Once a profile of what a board member should look like is developed, then you go out and you recruit board members. The most effective way in my experience is networking, and people are often surprised at the quality of board members that they can get for the business. After you have networked a bit and you have found your potential candidates, you go about recruiting them, a phone call. “Are you interested? Would you like to learn more?” You share a kind of summary of the board book with them and gauge their interest. If they still have interest and you found out more about them and you still have interest as a business owner or a set of business owners, you then bring them in for an interview. And if you like them, you put them on your board. That is way that I would say one would start a process of putting a board together.