Family businesses often face unique challenges and dynamics that differentiate them from other types of enterprises. One significant challenge is the consideration of hiring a non-family Non-Executive Director (NED) to join the board. This decision is often driven by the need for external perspectives, especially when family businesses are interested in bond issues or securing financing from banks.
However, while the decision to introduce a non-family NED might seem daunting, it’s essential to weigh up the following considerations:.
Perceived Threats vs. Real Benefits
One common concern among family businesses is the perception of a non-family NED as a threat. This perception stems from the fear that an outsider might “breathe down their necks,” imposing changes and exerting control over operations. Family businesses, often deeply rooted in tradition and familial governance, might feel uneasy about having to report to an external party regularly. The introduction of a non-family NED can be seen as an intrusion into the closely-knit family dynamic, potentially leading to resistance and friction.
Governance and Operational Issues
Family businesses frequently grapple with balancing operational and governance issues. While day-to-day operations are managed by family members, the need for robust governance becomes increasingly critical, especially when the business seeks external financing and for future sustainable growth. A non-family NED can bring a fresh perspective and help address governance issues effectively. However, the challenge lies in integrating this new role without disrupting the existing operational harmony.
The Case for Onboarding an External NED
Despite the challenges, hiring a non-family NED can be highly beneficial for a family business. The key to success lies in a structured and thoughtful onboarding process that ensures the NED can contribute effectively while respecting the unique family dynamics.
Here are 8 key objectives to aim for when onboarding an external NED:
1. Recognise the Value of Fresh Perspectives
A non-family NED can bring invaluable insights from different industries and non-family run businesses. Their external perspective can introduce best practices, innovative methodologies, and effective risk management strategies. By being outside the family dynamics, they can objectively assess the business’s operations and provide unbiased advice.
2. Build Trust Gradually
Innovation and change in a family business context should be approached incrementally. The non-family NED should focus on delivering small, credible improvements from one board meeting to the next. This gradual approach helps build trust and demonstrates the value of the NED’s guidance without overwhelming the family members.
3. Prevent Groupthink
Family businesses often fall into the trap of groupthink, where the same ideas circulate without being challenged. A non-family NED can break this cycle by questioning the status quo and encouraging diverse thinking. Their external viewpoint helps to identify and address issues that might be overlooked by family members accustomed to the business’s internal culture.
4. Provide Objective Oversight in Succession Planning
Succession planning is a critical area where a non-family NED can add significant value. Their objective stance allows them to navigate the complex dynamics and relationships within the family, ensuring that succession plans are realistic and aligned with the business’s future needs. By mapping current competencies against strategic requirements, they can identify training and mentoring opportunities for family members, ensuring a smooth and effective transition.
5. Enhance Professionalism and Governance
Experienced non-family NEDs bring a level of professionalism and structure to the board. They can help establish clear governance practices, set expectations for board meetings, and ensure that critical data and reports are shared transparently. This level of professionalism is crucial for preparing the business for future growth, whether through international expansion, financing, or other strategic initiatives.
6. Balance Family Interests with Business Priorities
Balancing family interests with business priorities is a delicate task. A non-family NED can facilitate this balance by understanding the family’s goals and aligning them with the business’ strategic objectives. They act as an empathetic yet objective mediator, ensuring that business decisions are made in the best interest of the company’s long-term sustainability.
7. Foster Credibility and Trust with Stakeholders
The presence of non-family NEDs enhances the credibility of the family business with external stakeholders, including banks, suppliers, and clients. Their role reassures stakeholders that decisions are made based on sound governance principles rather than emotional or familial biases. This trust is essential for securing financing, forming partnerships, and achieving sustainable growth.
8. Maintain Objectivity in Decision-Making
Objectivity is critical in board decisions, and non-family NEDs are uniquely positioned to provide this. Their independence allows them to challenge assumptions, offer constructive criticism, and make unbiased recommendations. Regular external reviews of the board’s performance can help maintain this objectivity and ensure that both family and non-family members are effectively contributing to the business’s success.
Hiring a non-family Non-Executive Director can be a transformative step for a family business, bringing fresh perspectives, enhancing governance, and ensuring long-term sustainability. By understanding the needs and addressing the frustrations associated with this decision, family businesses can successfully integrate non-family NEDs into their boards. This integration, when done thoughtfully and gradually, can lead to significant benefits, including improved innovation, professionalism, and stakeholder trust.
