Adding A Non-Executive-Director To The Board Of Your Family Owned Business

Whilst it can be exciting to expand the family business, taking it to the next level of growth can also be fraught with challenges. A strong and dynamic leadership team is required to plan and manage expansion from the top and help a company scale. However, many family business boards are predominantly or even exclusively made up of family members, which can hold a company back from reaching its potential. This is because family-only boards can lack diversity of thought and fresh-thinking with individuals likely to share similar values, opinions, beliefs and experiences.

Recruiting a non-family board member can increase the range of experience and expertise of a board, open the door to new contacts, spark creativity and offer new perspectives. These positive changes can lead to better governance and improve a company’s performance.

However, adding a non-family board member to a family board can be a significant change for the business and requires some important considerations before making any appointment.

The control conundrum 

A key concern for family business owners is the significant level of control that an external Non-Executive Director will have over their company and the uncertainty that this will bring (could the NED plus some family members outvote another family member?). One way around this is to recruit for a Board Advisor instead.

Unlike NEDs, Board Advisors are non-fiduciary; meaning they are not listed on Companies House as a Director, they don’t have the right to vote on board matters and they don’t carry the liability of a Director. Board Advisors are simply there to give advice, and that much needed outside perspective. They can be appointed for a shorter time-frame (NEDs are usually on three year contract terms, whereas a board advisor could be on any length of term you choose) and can be used on a more flexible basis. Most importantly though, the board can choose whether to take or discard their advice as they see fit. This allows a family board to gain a fresh perspective and draw on an expert opinion and different skill-set without any risk. They are accepting influence but not control.

In order to protect the Board Advisor, you need to ensure your governance arrangements are set up so that they would not be considered to have acted as a ‘Shadow Director’. See our blog on Shadow Directors for tips on this.

Problem solved? Well, not necessarily, the Board Advisor role isn’t the right structure for all boards. Sometimes recruiting a Non-Executive Director is the only way to break ‘group-think’, formalise and unite a family board, and help to move the company forward. Some family owned businesses will be required or advised to have Non-Executive Directors because of their size and respective Governance Code requirements. Take time to consider what is the most appropriate structure for your board.

Embracing change

Adding an external candidate to a family board can be unsettling and confronting for some family board members. Advice from outside the family may be difficult to hear and hard to not take personally at times. However, in order to give the external appointment the best possible chance to succeed in their role, family boards must get comfortable with being uncomfortable and be prepared to open their mind to new ways of thinking. It’s essential to show the new candidate that their view will be welcomed, respected and considered.

Bringing an external NED or Board Advisor into a family business is not a magic fix for everything that is wrong with the company. If board meetings resemble a dictatorship with one dominant voice that will not listen to reason and does not like to be challenged, then bringing in a NED is not necessarily going to solve that issue. In this situation, if a NED is brought in, their suggestions are shot down and they cannot effectively carry out their role, they’ll decide it’s not for them and move on. Any problems like this need to be addressed first, before bringing in a NED or Board Advisor.

Complementing your existing board

Jumping the gun and making a new Non-Exec or Board Advisor appointment quickly, without any strategic planning, is just bad business. During a time of significant growth and change in a family business, it can be tempting for companies to want to hastily grow their board at the same time and this can lead to costly mistakes.

It’s important for family business owners to step back, clear some head-space and look at where the gaps are in their board and what skills, experience and perspectives they will need from an incoming board member to add value and complement their existing team. They need to think about this alongside their business goals, strategy and forecasts to ensure that the best person is recruited to help the business achieve its objectives. It is essential to communicate this clearly in the role advert so prospective NEDs/ Board Advisors are aware of their role and what is expected of them; and to make sure the board is in agreement on their expectations from the appointment.

Emotional intelligence

Hiring an external candidate with relevant experience and the right skill-set and expertise will only be effective in helping a company grow if they have the emotional intelligence to navigate the dynamics of your unique family owned business. Family boards, more than any other businesses, can bring some unique challenges for external board members. Therefore, it is important to hire someone that will listen to all sides, bring impartiality to discussions, offer fresh perspectives and be sensitive to the dynamics between the family board members.

Get support

In order to find truly independent candidates for your board role it’s important to run a competitive process and our team at Dynamic Boards would be happy to help you with this.

We have an extensive database and can get your role in front of candidates that meet your brief. We operate on an advertising only model which reduces costs, and allows you to retain control of the filtering process. We can advise you on whether your salary expectations and time commitment are realistic for the type of talent you are hoping to attract. You can learn more about how we work here.

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