Opening up the board of directors to talent from outside the founding family prevents family dynamics from disrupting the functioning of the company. It also promotes the agility and attractiveness of the company. according to Miruna Radu-Lefebvre, holder of the “Family Entrepreneurship and Society” chair at Audencia.
As Miruna explains, “According to a 2019 Global Family Index study conducted by EY, 55% of the world’s 500 largest family businesses are led by a leader from outside the family. Gone are the days when genetic heritage was a guarantee of a management position. Family businesses should be aware that in order to meet the challenges of the modern world, the recruitment of managers from outside the family is crucial to their success. However, attracting and retaining outside partners, both experienced and qualified, and able to understand the vision and values of the family, remains a constant challenge.”
Family businesses are especially prone to complex governance issues, much more so than other businesses. On the one hand, the family dynamic often infuses the company with strong founding values and unwavering support, which in the long term strengthens the company. On the other hand, there is often a problem, wherein the strategy, innovation, and social or environmental aspect of the company, conflicts with the need for family shareholders to be aligned with the interests of the company.
As Miruna continues, “In practice, however, the business plan goes further than the family circle and extends to stakeholders: employees, customers, suppliers, consumers, etc. The role of governance is to ensure that family issues do not arise and disrupt the operation of the business.”
Therefore, the success and sustainability of the family business depends on the separation of the governance of the family from that of the company. “The company governance carries the social interest of the company, its proper functioning, calling for a clear family vision, carried collectively and with a single voice by the members of the family,” explains Johan Gaulin, family business lawyer-partner at EY. The integration of non-family members into the company and its management bodies is essential during important stages in the life of the company (crisis management, transfer, external growth, international development, etc).
Many family businesses have opened their boards of directors to third parties outside of the family circle. In 2019, in 500 of the world’s largest family businesses, 77% of board members were not family members.
As Miruna concludes, “The arrival of outside directors brings new perspectives, raises the level of debate, and above all, goes beyond considerations of issues and conflicts between family members. This is a hugely important, as strong differences or historical conflicts between directors from the family circle can create powerful obstacles to the proper functioning of the board.”
“An open board of directors with member from outside the family also promotes business growth. It guarantees more credibility from stakeholders and builds trust. Backed by structured family governance and solid corporate management, this board structure also contributes to better employee loyalty. This openness also creates long-term opportunities and fuel a virtuous circle of attracting talent, allowing the company to grow and progress.”