This week Sandra Eriksson, a family business advisor with Deloitte UK and Deloitte Sweden, discusses how to work with non-family directors.

The role and risk of non-family directors

Non-family members often play very important leadership roles in family enterprises, often taking on either executive or non-executive board positions. However, if they feel that the skills they bring to the business are not recognised and they do not get the opportunities that are normally provided had the role been in a non-family business, the risk of talented non-family directors resigning can develop. My experience is that it is often frustrating for non-family members when major roles in the business are not allocated in a meritocratic way. Additionally, they can struggle when family dynamics are given extensive attention, and they (unwillingly) become the link between family members that struggle to communicate with each other.

Another particular challenge I see is that as a result of the nature of family businesses, owners can be reluctant to allocate decision-making power to non-family directors, even if their involvement is a critical factor to ensure the success of the business. Having met family business owners from different parts of the world, I have noticed that there is sometimes the concern that bringing in and properly empowering non-family directors could possibly dilute the family's influence over the business as well as their reputation as a 'trusted family business'. Unfortunately, this can create an environment where decision making progress is much slower and can create an unhealthy relationship between family and non-family directors working in the business due to distrust and lack of autonomy..

Communication – are business decisions made for commercial reasons or for family reasons?

Bringing in non-family directors into a family business can cause cultural and integration problems, but of course can also bring huge benefits. The process of hiring someone for such a position needs to be handled appropriately, at the right time and with the right resources.

Being part of a family business is not only about one's expertise and understanding; maintaining the core family values of the business and respecting the legacy of previous generations can be just as important. The implication of this is that there is often a fine line between business decisions made due to commercial reasons and business decisions made due to family reasons, and creating an understanding early on around why decisions are being made can reduce confusion. Bridging the gap and ensuring strong relationships between family and non-family directors tends to require continuous communication and work to develop the understanding and chemistry between the people involved – putting time and energy into this is something we see as absolutely vital.

Important questions to consider when hiring non-family directors

Leadership issues are critical for any organisation, and my feeling is that few organisations would say that they do an excellent job at developing leaders at all levels. For family businesses, this issue can be even more significant in relation to non-family directors as a result of the dynamics mentioned above. Here are some crucial questions to consider:

  • What are the roles and responsibilities for the non-family director in question, and what does their mandate include (and not include)? 
  • Is there a governance structure in place so that non-family directors are clear on the decision making processes?
  • What kind of career plan is in place to develop non-family directors from within?
  • What financial incentives are in place for non-family directors to align their interests with the family?
  • How can non family directors learn about the values and heritage of the business?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.