BMW, Samsung, and Wal-Mart Stores, have one thing in common – they are all predominately family-owned business. Besides this, a study conducted by McKinsey confirms that the “250 largest companies in France and Germany are defined as family businesses, meaning that a family owns a significant share and can influence important decisions, particularly the election of the chairman and CEO”.
Although some may consider it great to spend their day kicking it with brothers and sisters, and together nurture a business, managing a family-owned company is no walk in the park. Indeed, less than 30 percent of family businesses survive into the third generation of family ownership. Those that do, however, tend to perform well over time compared with their corporate peers, according to recent McKinsey research.
From having to deal with different personalities and temperaments, to retaining a good rapport with family members you see around the Christmas table together with contrasting generational values and challenging a ‘doing it as it was always done’ mentality, family businesses are no easy feat. Throw emotions and familiarity into the mix, you’ve got a tough constellation to navigate.
While family businesses are run on a strong sense of purpose, it’s important to complement the family’s knowledge with the fresh strategic perspectives of qualified outsiders. Even when a family holds all the equity in a company, its board will benefit from having a proportion of outside directors.
A family business may be reluctant to onboard a NED, especially when operating in a highly specialised industry which requires technical knowledge. The family board may believe it has it all figured out, however, utilising the latest principles in company governance, and building on the experience of working with a myriad of companies, a NED can provide that fresh insight. Challenges can be perceived through a different lens, enabling a company to question assumptions, whilst unravelling opportunities never thought possible.
KPMG cites that “there is often a correlation between the financial performance and the involvement of an independent director. With formal board evaluations to assess the performance of the board, significant improvements have been seen in business performance”.
Prior to approaching a NED, it’s good to go through a thorough evaluation process to ensure that there is the right fit.
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