In an earlier post we talked about the — often mistaken — feeling that a family business just ought to have a board of directors. Arguments against a board generally revolve around whether the business owner is ready to receive advice. But it’s also possible to create a problem, even when the owner is ready to listen, by inviting the wrong people to join the board.
When business leaders discuss what worries them about boards, they mention fears that the directors will wrest control away from them. On the flip side, they worry that directors will simply approve everything without providing useful feedback. Other concerns include time-consuming wrangling, inability to make decisions and excessive preparation for meetings.
All valid concerns. That’s largely why we don’t recommend family businesses establish boards unless and until they really need them. But as valid as these worries are, many of them can be dealt with pretty easily by making sure not to put the wrong people on the board.
So who should you not be asking to sit on your board? The short answer is: Your paid advisors. That means not to invite your CPA or your lawyer. When we give this advice it often comes as a surprise to many business leaders who ask us about forming boards. It shouldn’t. Paid service providers have significant and obvious traits that disqualify them to be board members.
The first problem is that they are not independent. They work for the business. Any decision that affects the business inevitably affects them personally. Could a lawyer for whom a family business is an important client recommend that the company seek an acquirer, knowing this would likely mean the end of his client relationship? Possibly, but not reliably. Paid service providers lack the objectivity needed to be good directors.
Another problem with paid service providers is that they generally lack management experience. They know how to run a professional service firm, true. But they usually haven’t occupied the C-suite at companies like the ones they advise on legal, accounting, tax or other matters. They have some dealings with these companies, but they aren’t qualified to lead them.
So who are you looking for? The ideal board member is a smart, educated, experienced, and proven business leader. In a perfect world, it’s someone understands or touches your industry in some way. Many excellent board candidates are consultants, because unlike other service providers they often have highly relevant leadership experience with companies like the ones that are assembling a board.
None of this means you can’t or shouldn’t invite your lawyer and accountant to participate in some sessions, fine. But only as advisors, not members of the board of directors.
