The Changing Governance Landscape
27th February 2019 Hannah Harris, PwC UK Family Business Leader
Changing governance regulations for private businesses so is now the time to change your family business board? Hannah Harris shares her thoughts on the matter.
As family-owned businesses grow it is common for them to bring in independent directors to their boards. For example, many large businesses turn to a non-family CEO to take the business to the next level, recognising that they don’t have the required skills within their own family, or appoint independent Non-Executive Directors with the experience to provide challenge and connections to new markets.
However, I’ve seen many cases of businesses simply adding to their board, rather than looking at what skills are needed round the table to drive the business into the future. This is normally due to the original board being comprised of family members and businesses have wanted to maintain this to keep a perceived level of family involvement in the business, or to provide positions for the next generation, or because it is simply difficult to decide who to ask to step down.
The result can be a large board which includes members, especially in Chairman and Non-Executive roles, who have served long tenures and are not necessarily now close to the current operations of the business.
Under the new Corporate Governance reforms for privately-owned companies, any company which meets the definition of ‘large’ under the Companies Act 2006 (see notes below) now needs to include a statement in their strategic report describing how the directors have performed their duties. The role of a director includes being informed about the business’ vision and key operations to enable long term strategic decision making, while having regard to the interests of stakeholders.
These reforms therefore bring increased visibility and accountability to the role of a director in a family business and it is a great opportunity to use their introduction as a catalyst to review and renew the members of the board.
When deciding on the composition of your board, my advice would be to consider the following areas:
What knowledge, skills and attributes would be helpful to have on the board when considering the long term vision for the business?
Do we need independent Non Executive Directors to provide an outside point of view?
Which family members get a seat at the board to ensure representation across the generations and different branches, now and in the future?
Should there be fixed terms for family members?
Finally, my advice would be to seek independent support to work through the above, or compile a working group representing all stakeholders from across the business and the family.
About the Author - Hannah Harris is PwC UK Head of Family Business. She can be contacted directly to discuss this article or any other family business matters using the contact details here
The rules are changing for large companies as defined in the Companies Act meaning changes for those firms exceeding two out of three thresholds: £36m turnover; £18m total balance sheet assets; or 250 UK employees