The importance of a board of directors in a family business

Listen to Harry Martin, a Family Business Advisor and Family Office Expert, explain why an independent Board of Directors in a Family Business is necessary. In several family businesses, a controlling patriarch tends to make all the decisions in the business, thinking they know what is best for the business. Setting up an independent board of directors is essential in generating an objective opinion of the CEO's performance.

Many creators of businesses have the personal attributes that make them become controlling patriarchs. They have decisiveness, they have courage, and they end up believing that their own decisions are the best, and it is difficult for them to take advice. So, except for the controlling patriarch, who does not want any control from anybody, most family members when you tell the story, “Look, other companies have boards of directors, because they have different experience. A family is limited to a certain amount of numbers. Would it not be useful to get somebody who is a financial expert, or a legal expert, or a marketing expert, and they run their own company?” and usually it is fairly easy to convince the family, except when there is a controlling patriarch who does not want to be checked or balanced. And in some cases he has deliberately chosen his board to be people who are dependant on him, who felt that they really owed that very profitable board seat. So how do you get a board that is really independent? Because the key role of the board is to oversee the performance of the CEO. So this business of outside directors is terribly important.