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Five Factors For An Effective Family Business Board


The fallout from the COVID health and economic crisis demands high-performing boards. In these turbulent times boards are under pressure as never before, as they try to juggle future direction with oversight and accountability. This period of uncertainty is unlikely to end soon, as we start to extricate ourselves from the health emergency, that has become an economic crisis, which may also lead to significant social and political upheaval.


Now we have entered 2021 the spotlight is trained on boards. Questions need to be asked on are they up to the task in hand? How fit are they for the future? How effective are they, and can they move from self-protection and value preservation to a mindset of value creation that will successfully seize opportunities for their business?


There are five factors that will enable boards to deliver true value in this crisis:


Role Clarity

Role clarity is the heart of an effective board. While most directors respect the separation of the roles of the owners, management and the board, and understand the need to adopt a ‘directors’ mindset’, not many are familiar with the big question: how will the board steward the creation of value by the company? This is a question that will separate the wheat from the chaff in 2021. It’s those directors that have clarity about how they will steward the creation of value and demonstrate this through their board and committee workplans, calendars, and be accountable for value creation in their board reviews who will be exemplars.


Board Composition

It’s always necessary to tailor the composition of the board to add value to the buisness. As part of this remember that each board seat has a ‘cost per seat’, which means every director and chairman should ensure that the contribution of each director exceeds their cost.


Importantly, for the board to be fit for the future, it needs to adhere to the five drivers of diversity™: demographics, skills, experience, thinking styles and circles of influence.


Boards need to constantly ask how fit is their board composition for the future? A good board balances past, present and future. The time for “Jurassic boards” populated with dinosaurs is over! It’s effective boards that understand diversity does not come at the cost of merit and that diversity without inclusion is simply a box ticking illusion. They also recognise and are well equipped to deliver value in their four lines of sight – oversight, hindsight, insight and foresight.


Effective Board Processes

Boards must have effective processes, for example, oversight and accountability, to ensure delivery on its past and present orientated roles. This is just as important on its future focused value creation roles of strategy and policy. There are a number of crucial board processes to focus on in 2021, which include:


Assurance: have assurance, whether from unconflicted third parties and internally, that everything is in place to ensure that the board is exceeding oversight expectations.


Director specific: many things have gone virtual since March 2020, including director recruitment, induction and engagement. Directors are missing the ‘coffee, corridor and cab’ conversations that are lost with meetings online. Boards need to ensure that their director specific processes of gap analysis, specification, selection, appointment, induction, review, succession planning and exit are not weakened by the move to virtual.


Also, to be ‘fit for the future’ there needs to be particular focus on the selection, induction and review processes.


CEO specific: the crisis has clearly revealed those “leading light” CEOs who have shined as well as the weaknesses of those CEOs who are “simply light”. This is driving increased focus by boards on robust, repeatable and objective approaches to CEO evaluation, performance, succession and transition.


Risk and strategy: when the pandemic arrived too many boards were simply blind to critical business risks. They were also hampered by risk processes that were academic, impractical and in some cases simply unworkable. It’s effective boards that have started to challenge their understanding of risk and therefore their risk appetite. Many are demanding higher levels of board engagement in the inter-relation between risk, return and strategy in a Covid world.


Relationships

Boards can get caught up in a legalistic or process orientated approach which means critical human factors that drive board effectiveness – relationships and culture – are commonly ignored. It is effective boards that ensure their relationships support their role in stewarding the creation of value. By far the most critical relationship in the governance system is between the CEO and the chairman.


In most instances one or the other will leave if this critical relationship is dysfunctional. However, the board must always look at the spectrum of its relationships and ensure those with management, between the board, with the company secretary and, in particular, with key stakeholders are effective to enable the success of the organisation.


Culture

Culture is an issue that many boards struggle with. We have identified three populations on the boards that we work with:


The Jurassics: to them culture is the latest fad which will pass, like total quality management and mindfulness.


The restless: they have recognised that culture is important, but just don’t understand, or know what to do or how to deal with culture as a board.


The effective enablers: these are directors that not only recognise the importance of culture but actively engage in shaping and directing it.


Which of these characterisations best describes your board?

Effective boards acknowledge that they are responsible as custodians of culture – keeping, protecting and nurturing the good things, the ‘assets’, in company culture. Secondly, boards need to address where the culture is not appropriate and needs to change to meet current, let alone future expectations, and be ‘fit for the future’. This makes it vital that the board acts as the “shapers” of the culture.


Effective boards enact their role in culture by inspiring it, ensuring alignment, demonstrating authenticity by both reflecting and demonstrating the behaviours implicit in the culture, while guiding, encouraging and assuring themselves about it.


The impact of the pandemic has demanded three key success factors for effective boards – adaptability, courage and candour. For evolutionary success adaptability is key, and this is now demanded of our boards and businesses as we navigate the COVID age. Today is also the time for directors to be courageous in confronting reality, plus the need to evolve to ensure success. Finally, a culture of bad news coming more quickly to the board than good news is critical for candour, accountability, honesty and success.


Most directors are aware of the consequences of poor culture, from misconduct in financial institutions through to the debacles where there was a major disconnect between the behaviour that was promised and what was actually delivered in organisations. As a result, governments globally are increasingly looking at legislating to make directors liable for company culture, something that further amplifies the need for directors to take culture seriously.


The challenges organisations face today demand effective, high-performing boards and individual directors. Those that are lacking in any one of the five drivers of board effectiveness will struggle and will endanger the future long-term success of the companies they lead. During these tumultuous times boards must urgently consider these five factors if they are serious about surviving, thriving and driving growth.

About the Author - John Harte is the Managing Partner at Integrity Governance and leads a global team that is focused on making boards more effective. A boardroom expert working with multinationals and SME’s, he provides practical, impartial advice to directors, business owners and CEO’s to help improve performance. He is a regular speaker and thought leader on board effectiveness, practical governance and business disruption. John grew up in a family business and his extended family run fifth generation businesses and he has also served as a board member, chairman and adviser to many family firms. He also worked within Mars, a globally recognised family business for the best part of a decade.

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