Family owned/privately held organizations in wholesale distribution, both small and large, with succession issues, family preparation and second and third generation leadership issues have been subjected to the evolution of leadership. These organizations are often founded by an aggressive, highly talented entrepreneur. Many of the principles of leadership employed by the founder that helped build the success that the organization enjoyed in the past is not the type of leadership that will maintain that success through generations of ownership. The formation of a board with several outside directors can help ownership cross the transitional divide that often accompanies generational succession.
A Board of Directors, elected by ownership,
can provide the kind of support necessary to take the company to the next
level. No man is an island and it can become very lonely at the top. Growing an
organization is hard work. The president of the corporation not only has to
surround himself with an excellent team but he must be able to rely on another
power to challenge him and his team. The Board of Directors, in exercising its
business judgment, acts as an advisor and counselor to the President and his
executive team. The Board can help define and enforce standards of
accountability. Accountability that is often found lacking in a privately held
family run organization. A Board can challenge and help the management team
execute their responsibilities to the fullest extent in the best interest of
the shareholders.
A Sounding Board
A Board can have differing types of
responsibilities based on its written charter and by laws. However, the typical
responsibilities that a Board for a privately held corporation must live up to
are generally aligned with ownership/shareholder objectives. Overseeing the way
the company conducts its business to insure that it is managed effectively is
one primary responsibility. Selecting, compensating and evaluating the CEO is
another key responsibility. Someone has to have the power to take the CEO to
the woodshed when it becomes necessary. No one person has all the answers and
the board can provide the kind of advice and insight that may circumvent
mistakes or validate the direction the CEO is taking the company in. Boards can
be structured under a wide range of responsibilities and personalities. They
can be very formal with strict procedural requirements or they can be very
informal, made up of predominantly family members without the necessity of
following "Roberts Rules of Order" in conducting its business. It's
the opinion of this author that every Board including the "Family
Advisory" Board needs to have several outside directors elected. These
outside board members are not the company accountant, the company attorney or
best buddies with the owners. They are proven successful business people that
can serve the Board in an uncompromising objective manner. The Board can
support management in the development of organizational planning, succession
and resource management. The most effective Board will be a group of
professionals with a wide variety of skills. Ideally, these board members will
have backgrounds that differ from the management team but compliment their
skill sets.
The Board Personality
Just like management, a Board of Directors success and how supportive it is to management is directly related to their personality traits and their character. Selecting directors for board membership is critical and the process should not be taken lightly. These directors must perform the role of governance, although their primary role is one of a supporter, a coach and even mentors. They must also assume the role of questioners and monitors of company performance. As supporters they must provide guidance and advice while living up to their governance responsibility which insures the long term health of the organization. This role includes succession planning and holding the CEO and the management team accountable for the success of the organization. That is why the director's character is so important. A character that embraces the following:
o Honesty
o Integrity
o Enthusiasm
o Open mindedness
o Competence
o Trustworthiness
o Analytical thinking
o Being a team player
o A sense of humor
Strategic Planning
Every company needs to think about
its future. Developing a long term strategic plan is a key best practice within
wholesale distribution. A Board of Directors has the responsibility of
reviewing, approving and monitoring the success of the company's strategic
plan. The CEO is responsible for the company vision. The executive team should
create the roadmap, the strategic plan and the Board will review and approve
it. Monitoring the company's financial performance, reporting policies and
accounting practices are part of this process. Compliance and risk management
also become a part of the Board's responsibilities.
So What Does the Management Team Do?
It sounds like the management team
will spend most of it's time trying to keep the Board happy. Not true. The role
of the CEO and the management team is quite clear. They run the company. The
company's day-to-day business will always remain the responsibility of its
employees under the direction of senior management and the CEO. The CEO is held
accountable, as he should be, by the Board of Directors. Once the management
team creates the strategic plan and it is approved by the Board, they are fully
empowered to execute the plan.
Role of the Director
Directors are expected to demonstrate the kind of character that is beyond reproach. They must always act in the best interests of the business and fulfill their fiduciary responsibilities. They must always act honestly, ethically and with integrity. They must always maintain a courteous and respectful attitude. They will act in good faith exercising sound judgment, competence and due diligence. They must maintain the confidentiality of the organization and avoid any conflict of interests. Being a director should never be taken lightly. It requires time, attention and dedication. They are expected to attend all the scheduled meetings and serve on necessary committees that are in the best interest of the organization.
Leadership Development
Differing opinions and even
controversy over direct contact and relationships between board members and
members of the management team still exists today. However, it is widely
recognized that one of the board's responsibilities is not only succession
planning for the CEO but also succession within the ranks of executive
management. It would be extremely difficult for any board member to make a
contribution in the succession planning process if they had absolutely no
contact with the management team at all. This doesn't mean that any director
should encourage or support the circumvention of authority but private meetings
dealing with specific committee issues are not out of the ordinary. The board
may invite individual management team members to board meetings asking for a
specific presentation on important issues. This can also help the board in
evaluating individual management team members. Coaching, mentoring and
leadership development can be a significant contribution a director can make to
the future success of the company.
A Board of Directors should not
perform an adversarial role but a supportive role to the CEO and the management
team of the organization. The right board members can be significant part of
the success of the organization. The power the board has is dependent upon its
charter and it's by laws. Remember, the board is elected by the shareholders.
In a privately held corporation, this means that ownership determines the make
up and type of board they want to govern the organization. Successful owners,
true leaders understand the value a board of directors can provide.
