My brother and I own my family's midsized company. The company is over 60 years old and has been passed on to now the 3rd generation family ownership. While we own the company, we have a leadership team in place to run the company day to day (my brother works in the mid-level operations of the company and I work outside the company).
The company itself has been and continues to be very successful.
The Board has always been made up of family members in and out of the company and the board has never served a major role or had real governance for the company. I would like to create a "real" Board of Directors but have no experience in a real For-Profit Board. I am thinking either My brother and I, the top 2 executive at the company and 3 outsiders from different backgrounds, or my brother and I and 3 outsiders from different backgrounds. Thoughts?
What should the main roles of the board be?'
As my brother and I are brother relatively younger, I feel like my goals for the board are to raise red flags before any missteps are made and to hold the CEO accountable (the CEO is my uncle so family accountability can be sticky at times even with our strong relationship). The current executive team does a decent job coming up with big picture strategy and execution, I'm just looking for advisement and accountability. I will say the CEO always does what he believes is the best for the company and is mostly competent.
Why mess with a good thing? If it isn't broken don't try and fix it. All you are going to do is anger your uncle and the rest of the family involved with the business.
Structuring a board needs to be aligned with the corporate goals of the key stakeholders. If the company is looking to grow, a board is balanced by people who offer domain expertise and those with strategic and business building skill sets, preferably not within the category. This diversity drives unbiased and creative decision-making and should benefit the business. Filling a board with family members who do not bring a lot of tangible value and worse, are family stakeholders who often struggle to be objective (and often conflict of interest), well, this can be a difficult way to go. Business goals first, then determine what board resources (non-family) help reach business objectives.
If your company takes money from investors, the investors would probably want a board structure in place. It's a vehicle for them to directly influence the outcome of their investment and de-risk it as much as possible - if they can legally do this, why wouldn’t they?
A side effect of this relationship is that companies taking on a board may tap into invaluable insights, connections, and influence of their investors. These investors might have heaps of experience starting, running, and investing in companies. They might be truly qualified to assess your company’s biggest risks, and they might make it their job to figure out how to mitigate those risks.
The board could also run the company into the ground. It could be the source of repeated conflicts that might make your life miserable.
As a private, family-run business, you have the liberty of not risking a board running you into the ground. But it’s possible you’re also missing out on the value that active, successful investors may bring to the table.
I don’t think you need or would want a board, per-se. You might get the same opinions from having friends that are credible investors. E.g. a key insight into where the cutting edge of AI is at might help you decide whether it is a risk to you. Or maybe the investor has wind of potential disruptors of your industry...
There are two ways you can have members on the board:
* Board of Advisors
* Board of Directors
Board of Advisors:
Serve as advisors at various times during the life of the company. For a medical device company, the advisors will be practicing/retired MDs, nurses. The advisors are those who are very much interested in the company, not necessarily in the day-to-day activities but as "friends" of the company. They do no vote in company direction and do not necessarily sit on board meetings. (Some of them could be board observers). They usually are given a small stake in the company to keep their interests aligned.
Board of Directors:
Board of directors forms the ultimate governing body of a corporation and hence MUST have a very high stakes in the day-to-day execution of the company, the growth of the company. First and foremost, the board members should have a vision that not only aligns with that of the founder but the founders see a very good potential in the board to help take the vision much further along and provide the necessary help and support in executing the vision. Many times, people find that board is simply for voting, and deciding; but rather board is supposed to do a lot more, they even might share the office space and help the leadership team in making the visions into executable action plans. Hence, it is very important to do enough due diligence towards picking the board members. Since this is your first time, make sure you have the authority to correct a wrong election of a member. A single bad apple is enough to take the whole company down.
For a family business, I am not sure, but having a diverse set of individuals on board can help your family to broaden the vision of your company and instead of surviving, make new leaps and bounds. Isn't that what many entrepreneurs vision?
Wish your family and you Godspeed.
It is actually an excellent question. Some many people get the wrong Board or worse, miss an opportunity to make their business shine with the right governance in place.
You have differents option such as create an Advisory Board or Committee (RemCo, Audit...).
Given the size of your company, I would go for an Advisory Board. The key will be to find relevant Board member or non-execs to ensure the right governance is in place for your business.
In essence, they will act as "critical" friends. They will need to assess the risk/strategy of your business short term/long term and review it regularly.
If you like to go further, we have a free guide you can download on our website: www.NEDonBoard.com "What to expect of the NED role?"
We also have a course next one is Oct 27th, " Boardroom Empowerment" is an essential 1 day course for boards looking to appoint & Board members. https://www.nedonboard.com/non-executive-director-event/
Generally a CEO is only ordained for a large Firm that carries a Board of Directors of 12 or More. For a Smaller Private Company you should be looking for a Managing Director and 4 Other Directors. Explain to You Uncle that you have misunderstood the Corporate Executive Boards legal Structure,and that you now need to restructure to a Small Private Company legal structure. You could offer him the role of Managing Director & You & Your Brother could hold the Power balance by taking the Office as Chairman & Director Secretary. Another way to hone for more control over decision making is to look at your memorandum & read about your entitlements to purchase Shares. If You draft a Company Resolution to approve Shares, You & Your Brother can actually legally Buy Shares in Your Company,and increase Your Voting Power.
If for example a decision was needed and it had to be put to the vote, If Your Uncle and the two other Directors Voted against You & your Brothers Vote,and You both owned Majority Shares then the Two shareholders would win the vote against the other three. Shares are the way to hold sway to your firm convictions,but they mustn't lead to family power struggles though. The system was designed to be the "Money Talks" Shareholding System though bare in Mind.
I would be very careful. Sounds like things are working and this could make things worse.
I would discuss with the CEO and the other shareholders. Also, I would find a good lawyer/consultant/accountant that has worked with family business before.
One thing I would not do is put anyone (esp family members/shareholders) on the board unless they are truly qualified. At the very least they need to have been the CEO of a company before.