Adding a new member to a family business board of directors

During significant growth and change in your family business, it can be tempting to want to grow the board at the same time simply because there is more to do. But Penny advises a more strategic approach to board level recruitment.

“The timing of a new appointment to the board of your family business should be closely linked to the strategic objectives of the firm,” begins Penny. “Before you embark on the recruitment process, questions to ask yourself are:

• Do we have a clear strategy?
• Do we have the leadership to execute this strategy and if not, where are the gaps?
• What skills, experience and support do we need from the new member of staff?
• What resources will this new board member need? Can we provide them?
• Do our business plans and forecasts warrant bringing someone else onboard?"

By linking your strategy to any possible gaps in your leadership team you will be ensuring that you are specifically recruiting someone to carry out the role your business needs to achieve its objectives.

Penny points out that defining your strategy and assessing your board’s ability to deliver that strategy is something successful family businesses revisit on a regular basis. “These questions can be asked at any stage of a business whether it’s in its first or fifth generation,” she says. This is supported by a recent survey conducted by PwC that found that increasing competition is forcing family businesses to focus more on ‘professionalising’ their firms, including “beefing up the board”.

Board level recruitment in a family business is no different to recruiting a new board member to any other type of organisation. It requires objective thinking and a clear picture of the skills and experiences you are looking for from the new member of your team.

“Any family must look for individuals with a proven track record in building shareholder value, providing positive external business development and an ability to deal with shareholders where emotion may surpass rationality,” says Penny. “Previous professional experience of working on and in boards is essential.”

In addition, your recruit needs to fit in with the culture and ethos of your family business, as well as understand and respect any governance frameworks that the organisation has in place.

All of this can be ascertained and measured during the interview process, but this needs to be supported by obtaining references from previous employers. It is Penny’s view that headhunters are not always the best people to do this. “Understanding and learning how to get these yourselves will result in you being more comfortable with the end result,” she says. “Because the team’s involvement will allow you to ask referees the questions that a headhunter may not consider important.”

Having agreed that your business requires another board member, you may decide that you want to bring someone from outside the family into the fold. “Your priority is for the family to decide a fair process,” says Penny. “A very clear competence profile needs to be drawn up and agreed upon. Moreover, a clear list of interview questions and a plan for drawing external executives in, needs to be agreed.”

It is this last point that can be overlooked, because a different type of promotion is required with an external candidate than for a member of the family. The external executive will view the business as distinct from the family (because by law it is a separate legal entity), this external view on your family run business can be a key benefit to an external recruit.

Penny also has advice on how to appeal to external executives during the recruitment process. “It is in the family’s interest not to run a judicial process when interviewing and assessing candidates,” she says, “but rather engage them in wanting to work for the firm. Whilst a family may be duly proud of their achievements, they need to understand that they are hiring outsiders who are equally concerned with achievement and treat these individuals accordingly and with due respect.”

This may be obvious, but fairness is vital in giving yourselves and your business the best opportunity to choose the right candidate for the job. “We have seen many families fail in external recruitment because they have relied on their instincts rather than fair process,” says Penny. “Often interview training is required so family members can engage in a discussion of applicants which moves beyond the gut instinct.”

In Penny’s experience, family businesses are as likely to discount non-family candidates too quickly as they are to offer them a job without thinking it through. “External executives can add much to a family firm,” says Penny. “Understanding their personal aspirations and desires are equally important to skills and achievements. Take your time, do your homework and if in doubt, do not hire.”

Keeping the business in the family is a priority for many family-owned firms. But Penny advocates approaching family-member recruitment in the same way as external employment for the benefit of everyone, including the business.

“Deciding to bring a member of the family onto the board requires identical structures and processes as those applied to the hiring of an external candidate,” says Penny. “Most importantly, any candidate must be measured according to the same performance standards as everyone else. Failure to do so can lead to sub-standard strategic implementation and reduced value of the business.”

Recruitment at board level is the same as recruitment at any level within the family business. It all comes back to adding the most value to achieve the strategic objectives of the firm.