Family stops and business starts with the supervisory board

20th European Corporate Governance Conference Malta

Some of the biggest names in the European corporate governance community recently gathered in Malta for the 20th European Corporate Governance Conference. The European Confederation of Directors Associations (ecoDa) used the occasion to conduct its annual members meeting and board meeting.

ecoDa’s new chair, Irena Prijović, joined a panel discussion at the conference on about rebuilding trust in corporate governance – just one of the thought-provoking panels I was fortunate enough hear during my time in Malta.

Since I’ve been back in Germany, however, I keep coming back to one exchange that took place outside of the conference.

A number of us heard a report on corporate governance of family business in Finland, delivered by Philip Aminoff, Chair of the Directors’ Institute of Finland. In the discussion that followed, we came to conclusions on various points that very closely reflect my personal experience as a trusted advisor to international family businesses.

Drawing a line

Family businesses have an advantage when it comes to corporate culture: the fundamental principles of the family are baked right in to the company. From a corporate governance standpoint, alignment on culture, values, and trust is a much easier task.

The flip side to that coin are the things not inherent in a family, such as legal structures or decision making procedures. These keep a company on track and can help weather storms, but they are often not clearly defined in a family business, if they are defined at all.

A family business’s long-term success over several generations can be ascribed to one key element: placing non-family members in executive and supervisory board positions. This puts the decision of drawing the line between ‘family’ and ‘business’ in the hands of an impartial supervisory board, not in the hands of a family member for whom the lines are often blurred. It takes a deliberate effort and help from outside for a family to view the business as an ‘asset’ that needs to be managed.

From the outside in

Of course, this is dependent on finding the correct person from outside the family for the supervisory board, but there are criteria to make this decision easier:

–         A successful track record as a business manager should not be the deciding factor when nominating a supervisory board member – any nominee needs to possess skills that are specifically suited to serving on a supervisory board.

–         A nominee should not only come from outside the family, but should also be financially independent from the business and its owners. This means family lawyers, accountants, bankers, and business advisors should not be on the supervisory board.

–         Family matters can be sensitive issues, which makes alignment between the supervisory board and the family the most important and challenging part of the task. A successful candidate should be well-versed in diplomacy.

The importance of saying ‘no’

Serving on the supervisory board of a family business can be an exciting and rewarding professional experience. A word of caution, however, to anyone considering a family business supervisory board mandate: don’t accept if saying ‘no’ is not one of your strengths. Family members often struggle to say no to each other, even when it is necessary. That is a large part of your role.

It can be a thankless job – do not expect to be heaped with praise for your accomplishments. But if you can remain focused on the job, keep complaints to yourself, and stand firm in your professional assessments, you can rest assured that your impact on a family business will, in the long run, be a positive one.

Do you agree with my take on corporate governance of family businesses? What has your experience been like? I look forward to your anecdotes and learnings, and would be happy to share more of mine.

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