FAMILY BUSINESS SERIES: Outside Directors for Family Businesses

Family business face a dual challenge every day - - grappling with family issues and business issues. To help navigate those challenges it is critical to include independent directors on the Board of a family business.

An independent director—who has no connection to the company except for the director role— brings strategic advice, sophisticated business experience, diverse skills, and an objective perspective about the company’s best interests. An outside director can bring a family business to the next level of strategic growth and profitability. But in bringing in outside directors, the family retains control.

An independent director thinks only about the company and its success and brings a new and fresh voice to the conversation. He or she thinks strategically and long-term.

An independent director also asks the hard questions that family members might shy away from asking each other. Similarly, an outsider director can make hard decisions without feeling badly when a decision might benefit the company to the detriment of an individual family member. This director may also be able to resolve conflicts and to speak candidly when roles overlap or jobs are not being done.

An independent director’s perspective can also improve discipline and accountability. One family member may decline to tell another family member when costs need to be cut or business should be scaled back or reconsidered. An independent director has no such qualms, and this is healthy for the company. Likewise, an independent director can push family members to report on financial results, the status of specific projects, or long-term growth projections.

The independent director can also assist in succession planning for the business. An independent director can identify individuals who have the potential for different roles and prepare and train these individuals accordingly. An independent director can objectively assess personal strengths and weaknesses; this may be a challenging exercise among family members. At the same time, an independent director may function to safeguard the vision of a company’s founder or to remind others about the company’s goals or values.

The attorneys at the Bachman Law Firm understand your business and formulate creative legal solutions to enable you to reach and exceed your goals. You can reach us at 845-639-3210 or Judith@thebachmanlawfirm.com.