Family Businesses In The Boardroom: When Complementarity Outweighs Diversity

In the public debate on good corporate governance, one concept tends to dominate: diversity. Diversity of background, gender, expertise, and perspective is widely presented as essential to any well-functioning board.

The academic literature on board composition echoes this view. Broad competence, external perspectives, and independence are considered fundamental to effective boards.

At the same time, data from BI Norwegian Business School’s Centre for Ownership Research show that Norwegian family businesses are largely organised in ways that run counter to these ideals. On average, the family holds around 90 per cent of board seats.

In 83 per cent of companies, the board consists exclusively of family members. In 70 per cent of cases, the chair of the board is also a family member, and board members own an average of 76 per cent of the shares (BI Centre for Ownership Research, 2023).

Yet—and this is where it becomes interesting—the same source shows that family businesses, as a group, outperform companies with other ownership structures in terms of profitability. How can boards that seemingly violate established recommendations still succeed?

Board Theory And The Four Barriers

Research from the Scandinavian Executive Institute (SEI) and INSEAD identifies four key barriers to effective board work: limited time spent together, insufficient access to information, physical and psychological distance, and challenging group dynamics.

These barriers can impair a board’s ability to make sound decisions, even when its members are highly competent and experienced.

In many professional boards, considerable effort is devoted to compensating for precisely these conditions. Meetings tend to be infrequent and formal, information is filtered through management, board members have limited familiarity with one another, and trust takes a long time to build.

In family businesses, the starting point is often very different. Here, these barriers have largely already been addressed—or, in practice, eliminated. Family members spend time together over many years and generations, both formally and informally. They have deep knowledge of the business, the ownership structure, and the company’s history. The distance between board, owners, and company is minimal, and relationships, trust, and patterns of interaction are already in place.

This does not mean that board work in family businesses is simple or free of conflict, but rather that it operates under fundamentally different structural conditions than those assumed in much of traditional board theory.

Diversity Versus Complementarity

When board theory emphasises diversity, it is worth asking a more precise question: diversity of what, and for what purpose?

Stanislav Shekshnia, INSEAD professor and programme director of the Scandinavian Executive Institute’s Executive Board Programme, highlights four factors as critical to the composition of an effective board: competence, worldview, norms, and goals.

While the first two—competence and worldview—benefit from diversity, alignment is the ideal for the latter two: norms and goals. In many family businesses, these two factors are characterised by a high degree of shared understanding:

• Goals: Often clear, collective, and long-term, rooted in ownership, history, and the family’s interest in the company’s continuity.
  

• Norms and ways of working: Shaped over time, often across generations, with clear expectations regarding loyalty, commitment, and responsibility.

  
  

This points to an important, and often overlooked, insight in the diversity debate: diversity in itself is not necessarily a strength. An effective board needs diversity of competence, perspectives, and networks—but this must be combined with complementarity in goals, norms, and ways of working.

Family businesses often appear to be exceptionally strong in this latter dimension. This complementarity can, to a significant extent, compensate for a lack of diversity in competence and worldview, particularly as long as the business operates within familiar boundaries.

Purpose: An Underestimated Competitive Advantage

A central component of the SEI/INSEAD model for effective board work is the board’s purpose—the fundamental question of whom the board serves and what responsibility it carries. In many boards, this is less clear than one might expect. Individual directors may, in practice, feel accountable to different stakeholders: some represent major shareholders with their own agendas, others see themselves primarily as representatives of the company, while some relate mainly to their personal mandate.

In family businesses, this is often clearer. The board’s purpose is largely given: to steward and develop the family’s company over time. The question “to whom am I accountable?” typically has the same answer for most, if not all, board members. This clarity of purpose reduces internal tension, frees up decision-making capacity, and makes it easier to act cohesively, even in difficult situations.

It is therefore not necessarily the absence of diversity that explains the performance of family businesses, but rather the strength of their shared purpose and complementarity.

What Does This Mean For The Future?

The question is how this model will hold up in the face of increasing complexity. Multiple generations, professionalisation, internationalisation, and rising demands related to sustainability and social responsibility will place new requirements on board competence and perspectives.

If family businesses have already eliminated many of the classic barriers to effective board work, the next question becomes more challenging: can increased diversity in competence and worldview create additional value without undermining the complementarity that has been a source of strength?

And what happens if the external environment changes faster than the family’s shared worldview? Could what was once a competitive advantage become a constraint?

The Questions That Remain

Family businesses challenge some established assumptions about what a good board is—and should be. They demonstrate that ownership, relationships, and shared purpose can be just as important governance mechanisms as formal independence and breadth of expertise.

At the same time, they point to a more nuanced understanding of diversity. Diversity of competence and perspective is valuable, but only when combined with complementarity in goals, norms, and ways of working.

The most important questions going forward are therefore not whether family businesses should become more “like everyone else,” but how they can preserve their structural strengths while opening up to the diversity that the future genuinely requires.

Sources:

• BI Centre for Ownership Research (2023): Family Businesses in Norway – Board Composition and Profitability.

• Scandinavian Executive Institute & INSEAD (2022): Barriers to Board Effectiveness.

• INSEAD (2022): Compatibility and Complementarity of Directors.