WHY IT IS CALLED “REPORT TO THE BOARD” AND NOT REPORT TO THE TABLE?

IMPLICATIONS FOR FAMILY BUSINESS BOARDS.

Maryanne Peabody & Larry Stybel

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OUR MISSION:

• Wow your friends at Governance Trivia.

• Understand the core missions of Boards of Directors.

• How to deal with the most sensitive, critical issue in the life of family dominated companies.

QUESTIONS FOR YOU THIS MORNING:

• What Boards have you been on.

• Strengths?

• Weaknesses?

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WHY ‘REPORT TO THE BOARD?

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1620: THE NEW WORLD IS THE INTERNET OF ITS DAY.

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FRANCE, BRITAIN, SPAIN, AND PORTUGAL

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NETHERLANDS, SWEDEN, DENMARK

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DUTCH WEST INDIA COMPANY, 1621-1792

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PRIVATE INVESTORS FROM HOLLAND AND SWEDEN.

• South America-Africa Slave Trade.

• Swedish settles cultivate tobacco in Delaware Valley.

• Dutch settlers cultivate tobacco in Hudson River Valley.

• Headquarters on the Island of Manhattan.

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DID THE BUSINESS MODEL WORK OUT FOR INVESTORS?

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DID THE GOVERNANCE MODEL WORK OUT?

• “Directors” represented the investors.

• Review/approve strategy.

• Hire/Fire the CEO.

• Make sure the money is being spent correctly.

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REPORTING TO THE BOARD.

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400 Years of Board Work:

• Review and approve strategy.

• Hire and fire the CEO.

• Review the finances to see how the money is being spent.

• Nose In; Fingers Out.

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FAMILY DOMINATED COMPANIES.

• Since Boards represent the interests of owners.

• The owner is usually one dominant family member who also is CEO.

• The Board is often composed of relatives and socially/economically dependent “outside” Board members.

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When It Comes to Leadership Succession…..

• What’s YOUR experience in how it is working out?

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pwc

• 41% of family firms plan to pass ownership to the next generation within the family.

• 30% of family firms succeed from the first to the second generation.

• 10% of family firms succeed from the second to the third generation.

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A MODEST SUGGESTION:

• Succession Board of Advisors (N=3) to report to the Board of Directors.

• Composed of “true” outsiders.

• One independent ibanker/broker.

• One psychologist to assess children and recommend development plans.

• One tax professional.

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HOW THIS IS WORKING AT OTHER COMPANIES.

• Compensation Committee Becomes Compensation and Succession Planning Committee.

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DISCUSSION WITH SMALLER GROUPS.

• How might this work in your family business situations?

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ideas/reactions/concerns

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IDEAS TO ACTION:

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SUMMARY

• Boards are supposed to represent the interests of the owners.

• In the psychologically sensitive area of succession, they are structured to not do a good job.

• Appoint true outsiders (n=3) to a Board of Advisors to advise the Board.

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