Family Business: How to Establish an Effective Board of Directors

In most cases, board members are only family members. Even if there are managers or external directors who are not family members, the board of directors rarely really plays a role, and most of the decision-making power is concentrated in the hands of a few family shareholders. Family managers often refuse to establish a real board of directors and make it work effectively. According to the successful experience of family business at home and abroad for decades, it is of great significance to establish an effective board of directors for the modern operation of family business and the development of the company. In the reality of defining the functions of the board of directors, there is a widespread phenomenon of high concentration of equity and emptiness of the board of directors in family businesses. According to the survey, the proportion of private shares in private enterprises in China is above 90% on average. Among them, the proportion of the largest shareholder is as high as 66%, which is in an absolute control position. Together with the shares held by the family members of the business owner, the total shares can reach about 95% of the total shares of the business. Highly centralized ownership leads to the board of directors being controlled by family members. In the decision-making mechanism, most of them adopt "paternalistic" centralized decision-making, and the corporate culture is a kind of "boss culture", which hinders the sustainable development of enterprises. The board of directors exists in name only and cannot really play the role of decision-making and supervision. Some family businesses set up the board of directors only to meet the needs of legal form, and do not understand the real role of the board of directors. The main function of the board of directors is to represent the interests of the shareholders of the enterprise, monitor the long-term strategy of the company, become the consultant of the main managers, feed back their business behavior and implement strategic capability evaluation. In addition, the establishment and effective operation of the board of directors need to consider the specific development stage and specific needs of the enterprise. Small and medium-sized family businesses, because most of them are managed by shareholders, generally cannot hire high-level professional managers to join. The effective operation of the board of directors lies in its functions of consulting suggestions and target feedback. When the enterprise develops to the stage of large-scale development, the functions of the board of directors can be fully brought into play, especially when professional managers hold major management positions, the board of directors needs to represent the interests of shareholders. The main feature of distinguishing ownership from management right is that a few families are the main shareholders of the enterprise and also have the management right of the enterprise. Therefore, on the one hand, the family business should master the ownership through the seats on the board of directors, and at the same time, it should actually operate the company and pass on the management right to the next generation, so as to maintain the family's control over the enterprise. When the family's control over the ownership and management of the enterprise changes, it will inevitably have a great impact on the operation function of the board of directors and the business direction of the enterprise. However, the excessive concentration of equity leads to the operator not being responsible for most shareholders, which will lead to corporate governance problems. Generally speaking, the seats and proportion of family members in the board of directors can reflect the strength of family ownership. It is naturally difficult to clarify the influence of family population ratio and structure on company performance. Because family management often lacks a standardized management system, the power boundary between the board of directors and the management is unclear, and it is difficult for managers to give full play to their professional expertise. The rules and regulations are not perfect, the control means are not perfect, the internal communication is not smooth, and there is no scientific incentive mechanism. These metropolitan families make owners and boards afraid to let managers fully exercise their daily management rights. In addition, a few business owners have a strong desire for control, which hinders the normal operation of family businesses. In order to achieve a qualitative leap, family businesses must attach importance to the separation of ownership and management rights. Therefore, the family business should strictly distinguish the relationship between the board of directors and the management, distinguish the ownership from the responsibility of the management, and really let the managers operate boldly, create wealth for shareholders, seek benefits for employees and achieve a win-win situation. Establishing a standardized discussion mechanism After the establishment of the board of directors of family enterprises, it does not mean to sit back and relax, but to immediately establish and improve various internal rules and regulations in accordance with the scientific management model of modern corporate governance structure. According to the general manager responsibility system under the leadership of the board of directors, the general manager hired by the family business should be responsible to the board of directors, and the responsibilities and rights of professional managers should be clearly stipulated in the company's articles of association to restrain family members from interfering with the business activities of the enterprise outside the board of directors or the general manager. On the one hand, the establishment of a standardized deliberation system can prevent the infinite expansion of family will to a certain extent and improve the independence of the board of directors; On the other hand, it can encourage family board members to improve their knowledge structure and create conditions for scientific decision-making. The establishment of a standardized review system is inseparable from the introduction of independent directors from outside. Independent directors play an important role in the decision-making system of the board of directors, and their active participation is an important guarantee for the effective and independent decision-making of the board meeting. Standardized discussion mechanism of the board of directors is very important to improve the governance of family business, a key factor for the board of directors to give full play to its decision-making role, and an important guarantee for the effectiveness and independence of the board of directors. In essence, the board of directors is an organization where directors work together to manage the company after reaching a consensus through discussion and communication. Generally speaking, it is appropriate for family members to account for 2-3 members of the board of directors. However, nothing is absolute. If family members have good professional background and rich experience and can give insightful opinions on the strategy, finance and management supervision of the board of directors, then family members do not have to be in the majority. The ideal non-family directors are those experienced and independent external directors, that is, those individuals who have no conflict of interest with the enterprise and family. At the same time, they have globrand.com's achievements in the development field beneficial to the company, are familiar with the internal strengths and weaknesses, inheritance and development, career planning, family incentives and other issues of family businesses, and have clear insights and experiences on the problems and puzzles faced by top managers. These outside directors usually include legal consultants, accounting consultants and management consultants. The implementation of standardized discussion mechanism is conducive to the family board of directors to help enterprises form a strategy, which can not only reduce contradictions within the family, but also help heirs solve complex and challenging problems and form the company's long-term development goals. Improving the decision-making ability of family members In people's impression, family members who hold management positions often violate the principles of professional management. Due to the complexity of family social relations and the unique rules and ties of the family, it is difficult for an enterprise to implement pure professional management. In some family enterprises, there is a phenomenon that family members are unwilling to serve the enterprise, and the trust between family members and non-family members is not high. On the contrary, some non-family members have higher enthusiasm and ability to be business managers. If the family business wants to maintain the family management values, it needs to clearly define the responsibilities of management positions and implement the contract consciousness to every employee, including family members. Provide management training and development planning for those family members who are willing to serve the family business or hold important positions, and strictly stipulate the restrictive conditions for family members to enter the top management of the enterprise. For example, some family businesses encourage family members to enter the company after getting an MBA from Harvard Business School; Other family businesses require family members not only to obtain a formal business school degree, but also to have at least two years of working experience in other companies. The purpose of all these practices and regulations is to strengthen the management skills of family members, improve the overall management level within the enterprise, and at the same time enable family managers to win the recognition and respect of non-family members, so as to gain confidence in running the enterprise. In the early stage of starting a business, succession planning is made, and family businesses give priority to internal members when choosing managers. Unless absolutely necessary, they are unwilling to hire foreign managers, let alone professional strategic consultants. The management of family business is usually controlled by insiders. Once business accidents happen, successors often have file breaks. We know that hiring and firing CEO is one of the most familiar tasks of the board of directors. The board of directors regularly makes decisions on the succession of the CEO. When Chris Gent of Vodafone announced his retirement a year later, the board members had to rush to find a successor; Fiat's board of directors is even busier-they hired five executives in two years. 1996, when a plane carrying a delegation from the US Department of Commerce crashed in the Balkans, ABB et al. 1 1 company had to recruit new executives immediately. At the same time of the grief and confusion of the air crash, these companies have to formulate and implement succession plans. This unforeseen event may be a devastating blow to companies of any size. Having a complete succession plan is beneficial to the family business. With the succession plan, the board of directors can act quickly and confidently when it needs to make a decision, and can implement it immediately when necessary. Of course, having a complete succession plan can ensure that the company is as free from external interference as possible, and it is also one of the ways to enhance shareholder value.

The talent management of family enterprises should break through the protective "substitution" plan. It needs to establish a deeper talent pool to meet the needs of the organization, and unify the company's strategic agenda and core processes with the leadership's ability, evaluation and development. It is a systematic method, including the evaluation of senior management by the board of directors, and strengthening the leadership ability of the company by using the views of the board of directors.

The complexity of today's business organizations means that the board of directors should not only be responsible for succession planning at CEO level, but also develop into a wider field of talent management and leadership development. Due to the huge economic scale and complex business of some companies, more and more board of directors are planning the succession plan of the whole company.

The role of the board of directors is to protect and increase the property of shareholders, and to confirm that the behavior of enterprises is ethical and fair. The board of directors must trust the work of the management team, but it must also verify its work. In the new era, the family board of directors must reposition its role and operation mode, not only to ensure the appreciation of shareholders' assets, but also to plan the successor plan, so as to carry out its work more effectively and continuously. Welcome to discuss your views with the author of glob Brand. Dean Wong, master of business administration, has been teaching in universities for two years and has many years of management experience in large state-owned enterprises and foreign-funded enterprises. Participated in the World Bank expressway loan project operation, joint venture operation, multinational merger and acquisition negotiations. At present, he is a columnist of many online media such as Global Brand Network. He has published hundreds of thousands of articles on enterprise management in many newspapers and magazines such as Factory Management, Sales and Market, and Company. He has rich experience and unique management opinions in foreign companies. ) Enter the Dean Wong column.