Family Office – Board of Directors
What Tomás, my cousin, and I did to create the needed fundamental change was to present very early in our leadership of the company a series of alternatives to the board describing how challenged the company was. The contrast between our vision and the then unsuccessful situation made the task clear for the board and the company. We also described to the board how our generation of owners thought the company had to be managed in order for it to have a future.
– Ignacio Osborne, 6th generation CEO, Casa Osborne,
Cádiz, Spain, personal conversation with the author.
The primary responsibilities of a board of directors include the following:
- Review the financial status of the firm
- Deliberate on the strategy of the company
- Look out for the interests of shareholders
- Promote and protect the owning family’s unity and long-term commitment to the enterprise
- Mitigate potential conflicts between shareholders, including majority and minority shareholders, and between branches of the family
- Ensure the ethical management of the business and the application of adequate internal controls
- Review the performance of the CEO and hold him or the president of the family office and top management accountable for performance and good shareholder returns
Most boards of directors emphasize their responsibility to monitor management, with their mission guided by the implications of agency theory — that agents or managers have different objectives than principals or owners and, unless monitored, will not run the firm in the best interest of shareholders. The emphasis on monitoring is reflected on most boards in the publicly traded and management-controlled universe of companies and some of the larger family-controlled but publicly traded companies. When it comes to most family firms, however, particularly if they are privately held, boards are more likely to function in an advisory and value-adding capacity. This stands to reason, since there is evidence that family-owned and family-controlled firms benefit from lower agency costs and fewer agency risks, [i.e., costs and risks associated with owners delegating the management of the firm to agents, usually professional non-family managers.
Note though, in the absence of family unity, or if the agendas of majority and minority shareholders or different branches of the family begin to diverge, as is often the case in later generations, boards may be required to carry out much-needed monitoring and oversight.
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Chrisman, J., Chua, J. & Litz, R. (2004). Comparing the Agency Costs of Family and Non-Family Firms: Conceptual Issues and Exploratory Evidence, Entrepreneurship Theory and Practice, Summer, pp. 335–354.
Westphal, J. (1999). Collaboration in the Board-room: Behavioral and Performance Consequences of CEO-Board Social Ties, Academy of Management Journal, 42, pp. 7–24.