What are the benefits of SMEs/family/private companies forming boards?

There are a number of direct business benefits of having a formal Board and Independent Directors which include (not limited to);

  1. Clarity of strategy, direction and performance
  2. Execution of strategy
  3. Clarity of roles and responsibilities
  4. Accountability inside and external to the business
  5. Improved governance leading to improved relationships with the allied supply chain i.e. financiers, professional services
  6. Preparing the business for “sale” be that
    1. Inter-generational transfer
    2. Expansion
    3. Management buy in
    4. Joint venture or IPO
    5. Complete exit and disposal of business
  7. Facilitates separation of family and business that may result in all family members being external to the business

More importantly there are a number of “intangible” benefits that can come from this level of governance which include (not limited to);

  1. Improved workplace culture
  2. Improved dividends to external family members
  3. Decrease in family conflict
  4. Improved family security
  5. Increased appreciation on effort put in by family members
  6. Separation of the “fair v equity” debate within families.

However all of the above are not what should drive the family’s decision to progress to a Board because these points don’t actually align with the family values (not negotiables) or the family legacy (what the family is known for internally and externally). Nor do the above explicitly articulate the need for the Board and each individual Director to have a “value adding” orientation.

Family and Private business have unique demographics that have the potential to cause the Board and / or individual Directors to have “role creep” drawing them into the family dynamics. This is extremely unproductive for the Board, Directors and the Business because it distracts all of these people from their responsibility and focus of adding value to the business.

It is critical to remember that what is good for the business is also good for the family.

One final benefit of establishing a Board is the opportunity to select outside Independent Directors that not only add value to the business and are a “cultural fit” with the family business, they also come with a network of contacts that can be utilised by the family within its three frames of the Family, Ownership and Business.

This network could be of critical benefit in ensuring there is no “role creep” by the Board and Independent Directors in so much that the family could engage specialists from this network to assist them with their family governance. This facilitates the clear separation of the business of the business and the business of the family.

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