Serving as a Non-Family Board Member of a Family Business

You have been approached by a long-time friend, the CFO of a family-owned business who is herself a member of the family. She asks if you might be interested in serving on the board of her family’s company. You are honored, of course. But what questions should you ask in making your decision whether or not to accept the invitation? Below are some suggestions. 

Why is the family looking for an outside board member? 

You should ask about the history of this board.  Has it always had non-family members? If not, what is motivating this change? Professional advisors, more than ever before, are urging their family business clients to recruit board members who are not family members for the purpose of providing an objective view of the business, not overly influenced by family dynamics, history or tradition.  Outside board members may help the family business to be more businesslike, to approach challenges with new views, and perhaps even to pave the way for discussions of family business succession if that subject is difficult to broach within the family. Another benefit of going outside the family is that board members may be available with unique skills or experience, and strategic connections in the industry. A diversified board can provide opportunities for growth or exit strategies, if the business is looking in either of those directions. You should ask whether you are being approached because of your special skills and experience. Knowing what triggered the family’s search, and its approach to you in particular, is essential as you begin the discussion of board service.

Is there a strong consensus within the family that an outside board member is desired?

You should find out if your election to the board will be controversial within the family. If so, be prepared for the controversy and know ahead of time that you may face meetings filled with drama and emotion. You might find it stimulating to experience the process of working within a difficult situation and making it better—but be prepared to spend the time and effort necessary to reach constructive solutions. Know what you are getting yourself into, and know your limits before you accept the role.

What are the expectations about your role? Mediator? Objective observer? Tie-breaker? All of the above?

A non-family board member may be assigned any number of roles within the boardroom. Many family boards operate productively without the assistance of outsiders. For those family boards that reflect fault lines within the family structure, an outside board members may be expected to display mediation skills in order to help the board achieve a consensus. Other boards may want an objective and experienced business person to bring his or her talent to the organization in order to achieve certain goals. That person, whether a skilled mediator or experienced in the industry, may be called on to cast the tiebreaker vote in contested board actions. Under these circumstances, it will be necessary for you to know what your particular skills are and accept a board position only if you feel qualified to take on the challenge.

There are some additional, practical questions that you should be sure to bring up in your discussions. For example:

• What level of time commitment will be required for my board service? 
• Are there unique challenges that need special (or even urgent) attention?
• What do the financial statements and corporate/LLC records look like? 
• What are the compensation or other terms of your participation?
• Will there be directors’ and officers’ insurance coverage?

Once you have answers to the questions above, you will be able to determine whether this opportunity for board service is the right one for you.