Why is it important to have a Board?

BARCELONA, SPAIN. “I am the founder and have controlling interest in the business… why do I need a board to dictate to me how I should run my business?” This is a common condescending expression by owners when I pressed them to establish a real, authentic board of directors.

Family enterprises form the backbone of any economy as it represents more than 75% of all businesses in any country. Unfortunately, the governance model is almost exclusively dependent on what the founder or business leader wants. Where the owner goes, the rest follow and the old adage clearly says it all… if an owner tells his subordinate to “Jump”, the natural reaction of a beholden executive is to ask “How High?”

While today’s business culture isn’t as dictatorial as it has been in the past, there are still a lot of traditional thinking happening especially amongst the Silent and Baby boomer generation (born before 1945 then 1946 to 1964). The mistaken notion of losing power and ownership as a result of having non family members in the board continue to stoke fear on owners, effectively subsuming growth in favor of control and confidentiality. This universal mindset is obviously untrue as safeguards are always available. In the end, the qualification and the selection of the members of the board will determine the quality of discourse during board meetings.

The bottom line is this: family businesses should have an active board with non- family members (or advisors) if they intend to stay and thrive in a complex VUCA environment. One wrong decision can change the course of business overnight. Another bottom line: No business owner knows everything, even if he or she literally started the company.

In most cases, owners find themselves swamped with operational issues mostly petty day to day activities instead of focusing on strategic thinking. A working board compose of competent and experienced non family members act as a platform in generating a mindset that highlights “big picture thinking” and navigates family members in looking at the “forest rather than the trees”.


Turning around a Business with a $14 Billion Debt Burden

For those unfamiliar with the 1997 Asian financial crisis, most of the companies that defaulted were family owned. A case in point is the Asia Pulp & Paper (APP) owned by the Widjaja family from Indonesia. The group defaulted on the back of a staggering US$14 billion debt in 2001.

Despite the family debacle, they have since recovered and investors are showing renewed faith in the group. The combined market value of 12 family-controlled companies listed on the Singapore and Jakarta exchanges has held steady and is estimated between US$15 to US$16 billion. I am personally aware of this major turnaround as a colleague currently sits as an Independent Director in one of its listed companies. Their primary objective is to embed a Corporate Governance (CG) culture starting at the board level and highlighting the principles of transparency, accountability, integrity, fairness and independence.

In my W+B Family Advisory work, I always challenge business owners to nominate non-family members so they can provide value and strategic advice. These directors must also have the independence to challenge decisions when family and personal issues get mixed with the business.


The Value of Non Family Directors and or Advisors

The other role is also to impose discipline and check on entitled next generation owners who may whimsically make poor judgements to the detriment of the business and the other shareholders/relatives.

Non-executive or Independent directors (NED/ID) can assist with some of the issues most family enterprises face since they can speak without fear of retaliation other than being removed from the board. This allows the ID to speak their mind and raise sensitive issues minus the emotional clutter that’s prevalent in many family enterprises.

Family expert Prof John Ward accurately pointed this out in one of his articles, “The realm of business is dynamic and unpredictable. Companies are constantly reacting to evolving markets and competition. Family businesses face the added challenge of balancing business and family issues in strategy. Business change inevitably creates stresses that impact both management and ownership interests. In this setting, the board of directors has the special role of assuring the strategic alignment of business and ownership interests.”

If I hasten to add to Ward’s definition, one of the biggest contribution of non-family members is their sense of fiduciary duty minus the emotional baggage that gets in the way of decision making.”


Prof Enrique Soriano is a World Bank/IFC Governance Consultant, Senior Advisor of Post and Powell Singapore and the Executive Director of Wong + Bernstein, a research and consulting firm in Asia that serves family businesses, family offices and family foundations.

He is an associate member of the Singapore Institute of Directors (SID) and an advisor to business families worldwide, a sought after governance speakers, and the author of many articles and publications, including two best-selling Family Business books (Ensuring Your Family Business Legacy). To know more about his books, you can email esoriano@wongadvisory.com.