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Report to the Board: Implications for Family Business Boards

Explore the historical context of reporting to boards and its relevance in family business dynamics. Learn about the challenges of leadership succession and discover a suggested solution through the creation of a Succession Board of Advisors. Engage in discussions and gather ideas for implementing this approach in your own family business situation.

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Report to the Board: Implications for Family Business Boards

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  1. WHY IT IS CALLED “REPORT TO THE BOARD” AND NOT REPORT TO THE TABLE? IMPLICATIONS FOR FAMILY BUSINESS BOARDS. Maryanne Peabody & Larry Stybel

  2. 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.

  3. QUESTIONS FOR YOU THIS MORNING: • What Boards have you been on. • Strengths? • Weaknesses?

  4. WHY ‘REPORT TO THE BOARD?

  5. 1620: THE NEW WORLD IS THE INTERNET OF ITS DAY.

  6. FRANCE, BRITAIN, SPAIN, AND PORTUGAL

  7. NETHERLANDS, SWEDEN, DENMARK

  8. DUTCH WEST INDIA COMPANY, 1621-1792

  9. 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.

  10. DID THE BUSINESS MODEL WORK OUT FOR INVESTORS?

  11. 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.

  12. REPORTING TO THE BOARD.

  13. 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.

  14. 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.

  15. When It Comes to Leadership Succession….. • What’s YOUR experience in how it is working out?

  16. 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.

  17. 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.

  18. HOW THIS IS WORKING AT OTHER COMPANIES. • Compensation Committee Becomes Compensation and Succession Planning Committee.

  19. DISCUSSION WITH SMALLER GROUPS. • How might this work in your family business situations?

  20. ideas/reactions/concerns

  21. IDEAS TO ACTION:

  22. 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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