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Why it’s a good idea for family businesses to form boards

Much of my talk with owners of family businesses is about whether the time is right for them to create a formal board with independent directors.

Very few do, even where their companies have reached a significant scale. So I was pleased that on a recent webinar hosted by Sirdar, the South African-based organisation that helps build better boards around the continent, this was the topic of discussion.

There was easy unanimity among the contributors that appointing independent directors is a good idea. So why are most family business owners reluctant to bring in such independent voices? What do they fear? Why do they hold back from what is commonly labelled as “professionalising”?

Well, they’ve never done it, and doing so has never been on their horizon. As one owner-director-manager put it to me, “My brother and I just talk about things like strategy as we drive to and from our office,” and another does so with his father at their family Sunday lunches. That’s worked well enough, they reckon.

But as younger generations have been emerging into senior leadership, and as “sustainability” is entering the mindset of SME owners, more family businesses are bringing external minds into their worlds.

Not to hand over control to them, and perhaps not – at least initially – to have them be full directors with fiduciary responsibilities, but to be “advisory” board members. This way they can test the waters, seeing how much value they add and how well the chemistry works between them.

A common concern is loss of control, having been used to always acting as the sole decision-makers. Yet disagreements among family members are all too normal, and a common role of independent directors is to act as mediators and consensus builders.

More so if they are offered the position of chair – in itself recognised as displaying good governance. This implies seeking individuals with high emotional intelligence, able to bring together different perspectives.

The challenge is often between generations, where younger, more exposed directors may feel constrained by their elders – who remain convinced that the way they’ve always been handling the business should remain untouched. “If it ain’t broke, why fix it?” they pose.

A major benefit of bringing non-family members into a board is the formalisation of strategy development and implementation, along with more effective performance management.

Professionalising also implies having a Board Charter; circulating board papers in advance; and agreeing a calendar of board meetings (and perhaps board committee meetings, assuming the appetite exists), at least quarterly and each with their purpose and agenda. In these ways the business becomes more focused on the longer term – and is therefore more sustainable.

How do owners go about identifying the benefits they can enjoy as a result of appointing independent directors? It’s not hard.

The family decision-makers are typically the father and two or three from the next generation, maybe brothers, maybe cousins, and now including the occasional female member. They should list the areas where they are strong and ones where they are less so, and seek external contributors to fill the gaps.

Likely candidates will have their own functional, geographic and other experiences; they will come with complementary educational backgrounds and networks; and their personalities and styles will be compatible with those of the family.

It may be good to offer them initial engagements that don’t even include directorships. To offer a personal example, in a couple of family businesses where I was invited to be a director, it was after carrying out some consulting activity with the company. They were happy with my contribution and my style, and I felt comfortable with them.

Even once appointed, there may be benefits in having the independent directors carry out activities beyond merely attending board and board committee meetings. They can guide strategy retreats, meet stakeholders and offer other areas within their expertise.

At the conclusion of the Sirdar webinar, one of the panelists’ closing comments was to urge families to bring in external directors, as his family business had done to great effect. And for my conclusion here I turn to Manu Chandaria, whom I interviewed recently on a Nairobi Business Forum webinar.

In commenting on how it was that he and his family managed to grow their business to the scale they have achieved, one of his explanations was the bringing in of professionals as both board members and executives at an unusually early stage of their development. So if you are running a family business, try it!

Do women in boardroom improve performance?

A few months ago I wrote a column about my session at a Women On Boards Network (WOBN) event on building one’s brand as a board member, and today I share the views I expressed at the recent WOBN annual conference on how the presence of women on boards influences board governance and performance.

Over the last few years significant research has been carried out on this subject, with varying conclusions. Some (including one by IFC) found a positive correlation; others (like one carried out in Taiwan) reached an opposite view; and more saw no distinct impact, either positive or negative. Studies have also been carried out to see how the presence of only one woman differs from when there is more than one, creating a critical mass for the feminine voice.

As I have read the literature on the subject a number of questions kept nagging me. The first was to do with attributability. OK, performance was more this way or that way when women were members of a board, but how do we know it was their gender that made the difference? Couldn’t other factors have been the determinants – like the board focus on strategy and innovation as well as oversight; the qualities of the chairperson; the relationship between board and management?

Finally, how do we judge performance? Merely by growth and profitability? Or also taking into account other desirables, such as culture, purpose, sustainability?

I was almost amused to read in one study that found women are more conscientious in reading board papers and in their attendance at board meetings. Plus that where women are on boards the attendance of the men on those boards is also higher.

Another variable to consider is the effect of women directors who are either executive – with managerial positions; or non-executive – independent. And here the Taiwan-based study concluded that it is the non-execs who add more value, thanks to their broader and higher-level perspectives. Fair enough… as it would be for their male counterparts.

Generally, what we should be looking for among our board directors is previous experience – a portfolio of operational and board leadership positions; their ability to prevent and resolve conflicts; their networks; and other capabilities that reach beyond their gender… or how many degrees and other formal qualifications they have.

For sure we should enjoy the benefits of diversity on our boards, bringing in a collection of directors who together cover the spectrum of needed knowledge, skills and attitudes. And among these of course there should be a gender balance, just as there must be ethnic and generational balance.

My big conclusion, the consequence of my personal experience on boards and working with boards over many years, is that we should not over-generalise. I feel quite uncomfortable when I hear statements like “women are more emotionally intelligent” or “more spiteful”; or – as one study found – that they are “less economically oriented and more philanthropically focused”; or, as the IFC study showed, that “women are not as great risk-takers as men”.

Prior to addressing the WOBN conference I had a long conversation with my wife Evelyn Mungai who has been on many boards, and on not a few as their chairman (as she liked to be described). As I was already aware, her experience was aligned to mine, also leading her to an avoidance of gender stereotyping.

Let’s judge each individual on their personal merits. Let’s select board members, including women, who add needed value. Certainly there should not be tokenism, with flower girls merely decorating the boardroom. We equally disapprove of the “Old Boys’ Club” from which women are excluded. (Evelyn has smoothly entered some of those too, as an invited and welcomed member.)

What I – and my wife – want us to move to more fully is a situation where women are appointed to boards neither because of nor despite their gender. We look forward to a world where people ask: “Men? Women? So what? What difference does that make?”

Here in Kenya and elsewhere, she and I have been seeing that where boards are composed of innovative, responsible, progressive directors they will naturally include women among them, including as their leaders. Because they are good people. And don’t tell us you can’t find any.

How to make your board exit as smooth as possible

OK, so you’ve served your two terms as a director, and now it’s time to give way to someone else. You’ve enjoyed being in all those board committee meetings with your fellow directors, and you have developed close relations with several of them. You also feel good about the value you have been adding to an organisation with which you have come to associate yourself closely.

You became an ambassador and a champion for the brand, and you were a mentor and coach to several of the staff. If you were the chairman then your sense of ownership was the deeper, your relationship with the CEO the stronger. And now what had come to be an integral part of your life is coming to an end. It will leave a big gap. You will miss the collegial spirit, the sharing and the learning, the celebration of triumphs and breakthroughs… and even the mutual condoling following setbacks and crises.

Having been through numerous such transitions over the years I thought it would be helpful to write about how retiring directors can find ways of dealing with their loss of board positions, and equally how those they will be leaving behind can make their exit much smoother and more graceful than many turn out to be.

As I have thought about the stages one goes through, it occurred to me that they are actually akin to the grieving process. The first instinct is denial, to so wish your time will not be coming to an end that you actually avoid the reality of its imminence. But just as with the loss of a loved one, denial must inevitably give way to acceptance… and so the period of mourning over loss ensues. Eventually, with the further passage of time, the person reaches closure, heals and is able to look back at their years of service on that board with a sense of detached retrospection.

So first, what advice can I give the retiree? Always accept that your appointment was never meant to be for life, that no one is indispensable, and that as one door closes others may open. Keep giving your utmost till the last day of your term, and hand over on the due day with no regrets. Your inner motivation and sense of commitment may have dimmed somewhat, but let this is in no way affect how you perform your duties. Be proud of your legacy, and have others speak well of you.

INNER EMOTIONS

Then, how should the remainers support those who are “rotating out”? Understand that your departing colleagues may indeed be grieving, however stoic they may appear. We are all human, and so our stiff upper lip may hide uncomfortable inner emotions.

Therefore show generous appreciation for where and how they have made a difference, and in addition to expressing this informally it is good to lay on a ceremony, however brief, to acknowledge their contributions with a speech or two and a notional gift through which they can continue remembering their time among you with pleasure.

What I have seen is that in too many situations – not least in the public sector – when your time is up, that’s it. You are immediately disconnected, no one is bothered to tap into your skills or your institutional memory any longer, and it’s as if you never existed.

Some organisations have devised ways of holding on to past leaders so they can continue benefiting from their wisdom, whether as consultants and advisers, or maybe as Fellows. In such “life after death” positions these elders must in no way compete with the directors of the day but be available to complement their roles.

I have found this to be particularly helpful where directors are volunteers, and the best example I can think of is Kenya private Sector Alliance (Kepsa) with its Advisory Council (of which I am a member) and its Foundation.

In conclusion therefore, I invite board directors to appreciate that their outgoing colleagues are normal men and women with normal human emotions, in need of empathy and appreciation as they reach the end of their terms in office. Say farewell nicely, and have them continue to speak well of your organisation.

Building your brand for boardroom role

Just before all public events were cancelled earlier this year I was invited by the Women on Boards Network to run a session on building one’s brand as a board member. It was, as I expected it would be, a lively evening with over 50 bright, engaged women in the room.

How fortunate we are in Kenya to have many women who are already competent directors, plus many more board-ready members of that gender. And how fortunate we are to have an organisation dedicated to developing women to become high-contribution board members and to link them up with organisations seeking such people.

My theme for the evening was about making a contribution, about adding value as a board member. And of course just about everything I shared would have been just the same had I been with a group of men.

The process must start by understanding oneself and appreciating what it is that one is offering. Yet too few of us have indulged in the kind of self-exploration that this requires, and here I quoted Benjamin Franklin, who found that “there are three things extremely hard: steel, a diamond and knowing oneself”.

But it is very doable, and I advised the good ladies to start by listing their achievements and the strengths that explain them, without bragging and without undue humility. That establishes (or rather should establish) a base for self-esteem and hence confidence and boldness.

Then, as they look back over how their lives have evolved, to identify their areas of competence, ones that are needed in the board room. Are they a financial guru, a legal eagle? A strategy wonk, a digital wizard? Is their field marketing, or talent management? Are they change champions? Which sectors do they know inside out? Is their hot spot compliance or sustainability? Have they been through challenging mergers or acquisitions? How will they add value in the post-Covid world?

More questions, now more to do with values, attitudes and behaviour. Are they trustworthy and reliable? Emotionally intelligent? Skilled communicators? Thought leaders? Disruptive innovators? Mediators and consensus-builders? Networkers? What is their risk appetite? Are they short-term problem solvers, long-term sustainability builders? And before all that, will they make the necessary time?

I also introduced the Women on Boards group to personality assessments they would benefit from undertaking, helping them to reveal more about their preferences. What role in a board team would they naturally gravitate towards?

In the language of Meredith Belbin, what “team type” are they? A “People person”, who revels in coordinating; being a team worker; or a resource person? An “Action person”, who is a task-focused pushy character; an implementer; or a perfectionist-completer? Or a “Thought person”, who is a creative; a specialist; or someone whose natural home is monitoring and evaluation? Then, are they more of an extrovert or an introvert? Guarded or open? So many questions to help a person position and further build their brand.

I also helped the group I was with to examine their suitability for being the chairperson of a board. Are they the type who can bring people together around common visions and values; run lively and useful meetings to which participants look forward; build relationships with colleagues, management and other stakeholders… and so earn the respect of all concerned?

Good governance requires boards to list the personalities, skills and exposure mix that’s needed for them to fulfill their role holistically as a team. So those seeking directors’ positions must be aware of the gaps that any board wishes to fill and match these with what they are offering.
That’s what Women on Boards Kenya helps with, and so if you are a woman who believes you are ready to sit around one of those board room tables I encourage you to reach out to them.

The last slide from my presentation to the ladies came from a disturbing study which revealed that there are more men named John running big companies in America than all women. More named David too. But at least there are more women than men named Robert or James.
Good luck, ladies, the women on boards cup isn’t yet full, but here in Kenya it is filling reasonably well.