Having a board of directors with external executive and non-executive directors is considered best practice for ensuring that family businesses survive the third-generation wobbles. Unfortunately, most family businesses prefer “family” to be the operative word when it comes to sharing the leadership and executive load.
The director and founder of Sydney-based board advisory firm Mondo Partners, Simone Allan, says families that want their business to succeed in the long term need “real-world advice from external directors to help make it happen”. But many family businesses are reluctant to allow “strangers” into their organisations, she says.
Research by accounting group MGI and Melbourne’s RMIT University in 2010 found that almost 9 out of 10 family businesses did not have external directors (executive or non-executive), and in 52.5 per cent of cases the reason given was “a desire to retain privacy”.
“Most families long for privacy at a personal level and this is understandable. However, transferring the desire for privacy to the family business does not make sense,” Allan says.
“[F]amily boards have a natural tendency to look inwards and will inevitably spend time managing family rivalries instead of the main game. If nothing else, they need external board members to help dampen these tensions.”
Allan provides these tips for family businesses wanting to improve management and governance systems:
• Establish forums that allow all family members to contribute and participate.
• Agree on a set of rules – for example, in the form of a family constitution.
• Elect or appoint family executives for their ability rather than seniority and once appointed “give them space to move”.
• Look beyond the family to acquire complementary experience and expertise to grow the business to the next level.
• Family members should work outside the business acquiring business and management experience before assuming management responsibilities within the family business.
• When selecting external directors, evaluate soft skills as a way to assess cultural fit with family members: Will the family engage with this person? Will the family take direction from them? Do they share the same values? Can they offer direction without being accused of taking sides?
“There are always people available with the hard skills required to do the job, but the right soft skills are equally essential, especially in family companies,” Allan says.
The managing director of South Australian winemaker, Taylors Wines, Mitchell Taylor, is a third-generation chief executive who has combined internal and external talent in the company.
The family – including cousins and partners in-law – are actively involved in the company through a series of formal structures governed by a family constitution. The constitution sets out codes of behaviour, responsibilities and rules of engagement, as well as the workings of the Taylor Family Forum.
The forum is used for “communication, problem-solving and … bringing all family members together to get the information they need. Meetings will be used to celebrate our family’s success and joy at being a family with a shared business interest”.
On the subject of non-family directors, the constitution stipulates that “people other than family members may become directors and managers of the business” and “people other than family members may become executive or non-executive directors.”
“As the business continues to grow, it is expected and recognised as desirable that non-family people will be involved in key roles where additional skills are required that cannot be supplied by the family,” the constitution states.
As with all family members in the business, Mitchell Taylor first worked outside the business – principally as a stockbroker in Australia and overseas – before joining Taylors Wines in 1988, where he held key positions across various portfolios before becoming managing director in 2000.