'Blood is thicker than EPS': how to excel as a board member of a family-owned company.

• Author: Clarke, Richard M.
• Position: PRIVATE COMPANY BOARDS

OVER THE PAST FIVE DECADES I've had the privilege of serving on the boards of four very different family-owned and -operated companies. In fact, I started my career in the mid-1950s working for a small family-owned company that fabricated high-performance components from innovative polymeric materials. I learned a lot about business rather quickly, and I saw at first hand the passion and dedication the founders and their family brought to surviving tough times and growing the company. I've also served on the boards of publicly traded companies, so I have both experiences to draw upon when I reflect on director duties in the domain of the family-owned company versus the publicly traded corporation. I'm not stating that one is better than the other; not for a minute is that the case. The two have distinctly different characteristics. Clearly, however, the family company character is much more "human," which at times can play a determining role in results--good or bad--and must be carefully monitored by the board of directors and top executives.

In every country of the world, the large population of family-owned companies constitutes a bedrock of commercial activity and creativity. Most operate within the same legal and financial framework placed on publicly traded corporations. But family companies place an added layer of obligations on their board members, especially the independent non-family director (often called an outside director). It should be no surprise that these demands are unique to each family-owned company. Simply stated, each family has distinctly different characteristics, needs, and driving forces that affect their company.

The big tradeoff

While it's easy to state such an obvious fact, it is far more complex to explain how this translates into additional or different duties for those who want to excel as members of a family-owned company board. Look at the dynamics of any family (your own, for example), and you begin to understand the tradeoffs often made between material gain versus quality of life. This same balancing act takes place in family-owned/operated companies. You must not only try to understand this, but also recognize how this may influence your actions and advice as a director.

Quite often one hears that the responsibility of a director, or the board in total, is not only to protect shareholder value but also to grow it. I don't dispute this as an important part of a board's duties. There is a distinction, however, between being a shareholder in a family company versus a publicly traded company, and that...