Well-structured boards help propel multigenerational family businesses forward

By Maudelyn Green and Chip McLeod, Bank of America Upstate South Carolina

In a company’s early days, success is often marked by the founder’s agile decision-making and intuitive leadership. However, as a company matures into a multi-generational family entity, the convergence of personal and professional dynamics can create conflict and confusion. This heightened complexity necessitates greater structure in the form of a governance body, such as a board.

With Upstate South Carolina’s advantage as a prime destination for expanding businesses and relocation, a dynamic regional labor force of just over 800,000, according to the Upstate SC Alliance, multigenerational businesses can take advantage of this human capital pool in recruiting for and establishing their boards.

The value and influence of an effective board

Boards serve as safe, objective forums for discussion and counsel. They provide a platform for business leaders to rigorously test ideas, identify blind spots and build confidence to make consequential moves that secure credibility with family shareholders.

A board’s objectivity can also help cut through complicated family dynamics, which is particularly vital when it comes to topics like compensation, roles and succession. According to a Deloitte Private survey, 76% of family businesses with $100 million to $500 million in revenue, and 96% of those with over $500 million, have established a board.

The impact of a board goes far beyond simply helping founders navigate complex family dynamics. A board helps ensure coordinated planning that spans family vision, estate and succession planning, as well as enterprise strategy.

A board can improve the quality of strategic thinking across both immediate growth plans and long-term survival and prosperity. The right directors bring trusted experience and expertise, including professional networks, specialized know-how and pattern recognition on various economic, operational and market trends. Directors can also help assess leadership depth and development and support difficult personnel decisions.

A board’s role in supporting succession planning

An effective succession plan is a roadmap for a multi-year process that must weigh business realities and family dynamics. Family business owners recognize the importance of succession planning, with 85% of Deloitte Private survey respondents agreeing that it is essential to their sustained success. Despite that, many owners delay planning, with only 57% having established a plan and even fewer (23%) actively implementing one. About a third (30%) of respondents admit they’re “behind schedule” on succession planning.

A board can change that trajectory by:

• Raising the issue early and consistently, ideally years before a planned transition.
• Providing a private setting to weigh options such as choosing successors (both within and outside of the family), bringing in external leadership or preparing for a sale.
• Tracking successor readiness and pushing for stretch roles, exposure and accountability so candidates develop into well-rounded leaders.
• Smoothing the human side of transitions by defusing tensions and reinforcing decisions with objective reasoning.

Building a board that drives value

Designing a board starts by outlining the company’s top challenges and opportunities in the next five to 10 years, whether that’s succession, consolidation, capital needs, innovation or geographic expansion. These priorities can help inform the mix of skills and perspectives a board should include.

A practical next step is to craft a board prospectus, a two-to five-page document that defines the board’s purpose, goals, design, desired director qualities, structure, compensation and time commitments. It should reflect the owner’s values and the company’s culture and can become a recruiting tool and a touchstone for board effectiveness.
For ownership groups, the owners themselves are responsible for deciding their governance structure. In cases where all owners are senior managers, it’s common for each to have a seat; however, this can become unwieldy beyond four or five members. Owners aiming for multi-generational success should consider adding independent directors to the board who can inject fresh perspectives.

Owners may be hesitant to cede control, expose weaknesses, or find culturally aligned talent. In practice, though, the right independent directors amplify owner control by enhancing decision-making, strengthening governance and accelerating execution. To find the right fit, leaders should define eligibility criteria, the ideal skills and experience profile and how seats are nominated or selected. To simplify the search, owners can tap their network of trusted advisors — accountants, attorneys, consultants and bankers — for recommendations.
Thoughtfully constructed boards give family enterprises across the Upstate region the structure to scale, the discipline to weather market fluctuations and the wisdom to ensure smooth leadership transitions.

Independent directors, clear documents and a thoughtful composition aligned to strategy can transform governance from a formality into a growth engine.

Maudelyn Green serves as Bank of America GCB SVP, Sr. Relationship Manager for Upstate South Carolina. Chip McLeod serves as Bank of America President for Upstate South Carolina.