Privacy needs keep outsiders off family boards

20-10-2011
"External Board members can provide access to new skills and experience!"

A desire to keep everything in the family is discouraging family businesses from appointing outside directors to their boards and holding them back from maximising their potential.

A recent MGI Australian Family and Private Business Survey found that only 42 per cent of family businesses have a board of directors. Of those that do, 85 per cent do not have non-family executive directors on their boards, while 86 per cent do not have non-family, non-executive directors on their boards.

According to the findings of the survey conducted by RMIT University of 5,000 Australian companies, the main reason given by 53 per cent of family businesses for not having non-family, nonexecutive directors on their boards was a desire to maintain the family’s privacy.

A further reason for the absence of non-family directors on the boards of 29 per cent of businesses was that they felt the skills required at board level already existed in-house.

However, Sue Prestney, executive chairman of MGI Australasia, says: “Maybe in some cases that’s true, but it is hard to believe that many businesses could not do with an injection of skills or someone who could broaden their networks or access people of influence.”

She says it is concerning that 58 per cent of family businesses do not have a board of directors. “This is likely to mean there are many businesses that are not implementing sound corporate governance practices. A business without a formal board is more likely to concentrate on operational matters and neglect big picture issues. In many cases, there are no formal meetings being held to deal with strategy, risk management, regulatory compliance and other matters normally dealt with by a board.

“External board members can provide the business with access to new skills and experience, as well as to ambassadors to open up important networks for the business. They can also provide support and guidance to family business owners and valuable mentoring to successors.

“Importantly for family businesses, an independent board puts professionalism and objectivity into business decisions affecting family members. This will, in turn, assist in maintaining family harmony.” So how do family businesses get across the privacy issue?

Prestney says: “You point out that directors have obligations under the Corporations Act 2001 to act in the best interests of the company and not to use the information they obtain to cause detriment to the company or gain an advantage for themselves or someone else.”

She adds that the key is also to find the right person – “someone who has the personality, values and culture that will fit into your organisation so that you won’t feel uncomfortable talking to them”.

While there are many ways to find the right person, she says it’s often the accountants or other trusted advisers of the family business who can help. “They will have a network of people and know the business and the personalities involved well, and should be able to suggest people likely to fit and have the required skills.”

The Boardroom Report - Australian Institute of Company Directors.