Quick overview of why boards of directors exist and what they do, written for family members soon to become directors of family businesses.

1. Who Needs a Board of Directors?
Introduction for Family Members
Joining Family Company Board

2. Why are boards needed?
• Manages balance between health and
strategy of enterprise and needs and desires
of shareholders
– One owner: one voice
– Two owners: process of decisions pretty clear
– Five owners: complex, possible tug of war
– Multiple generations and multiple owners: serious
risk of chaos, could seriously harm the enterprise
that supports all.

3. Role of the Board of Directors
• Roles:
– Fiduciary for all shareholders: pizza not slice
– Guardians of perpetual life of corporation
– Legally responsible for health of enterprise and
compliance with bylaws and other laws
• Goals:
– Ensure that CEO is acting in best interests of
enterprise and shareholders
– Measured usually by financial results and enterprise
value

4. How does the Board do this?
• Oversee development & execution of corporate
strategy
• Select & evaluate CEO
• Review & approve such major decisions as asset
allocation, incurrence of debt, sale or purchase of
significant assets, dividends & distributions
• Ensure correct & accurate measurement of activity:
financial, audit, risk oversight
• Oversee communications to/from
shareholders/Family Council

5. Who chooses Board members & how?
• Family Council & OR Board level Nominating
Committee may have role nominating
directors
• Shareholders vote on nominees

6. Selecting Nominees & Developing the Board
• Variables need to be considered:
– Level of stock ownership
– Expertise, perspective, judgment of candidates
– Balance among
• Management & non management members
• Family branches, generations, experience, other
• Family only, or add non family
– Mandated ratios, or judgment based?
• Active board of directors does not preclude use
of one or more advisory boards

7. How is work of Board organized?
• Annual shareholder meeting elects directors, determines
terms
• Organizational meeting follows: board members elect chair,
committee chairs, often only a formality as board has policies
in place to address
• Quarterly meetings typical, scheduled based on availability of
financial reports
• Proceedings memorialized in minutes- permanent record
• Decisions take form of votes on resolutions
• Voting is one reason boards are typically comprised of odd
number

8. How is Board structured?
• Typical committees (a way of spreading the work
and time commitment):
– Audit (ensures integrity of financial reporting)
– Corporate Governance and Nominating (ensures good board
function, sources and recommends new directors)
– Compensation (reviews compensation philosophy and reviews
and recommends approval re incentive compensation awards,
compensation for CEO, etc.)
• Others can include:
– Risk Oversight, Technology, Investment, Executive: committees
that reflect specific issues.
– Biltmore, for example, might create a Preservation, or Facilities,
Committee

9. Evaluating the Board
• Board uses bylaws and its own policies as
framework for action and evaluation
• In public companies, typically governance
committee sponsors board and committee
evaluation process
• Family Council may have role in doing this

10. What does Chairman do?
• Board determines if CEO and Chair are one
person or two, in consultation with Family
Council
• Chairman, in consultation with CEO and
directors, sets the board agenda and manages
the board and its proceedings

11. Role of Family Council
• How do the family, the shareholders, the board, the CEO, and
family member employees relate to each other?
– Though same people can wear many hats, each has a different role
and responsibility
• Family Council plays critical role:
– Clarifies goals and values of family/shareholders with respect to
company
– Determines how family and shareholder interests and desires are
collected, assessed and communicated among family
members/shareholders.
– Development of policies relating to family wearing their various hats
(family, shareholder, director, employee, spouse)
– Provides resulting input to directors and CEO.
– Ensures clear communication to/from all family members to/from
Company

12. How do things go wrong?
• Conflicting family/shareholder expectations re strategy, execution,
employment, leadership, investment, distribution
• Unclear borders and boundaries amongst the various roles
family/shareholders/directors/managers play.
• Inconsistent communications between management, board, family
council, shareholders, family members.
• Poorly executed leadership transitions
• Perceived inequities re power and money
• Lack of liquidity in stock; Board may want to create a stock buy back
program

13. How to continue to thrive?
• Clearly define roles and responsibilities of each:
– Family Member
– Family Council
– Shareholder
– Board Member (Non Mgmt)
– CEO
– Management
• Train all family members as to governance of
both family and enterprise
• Develop a coherent method of continuous
clarification of family and of enterprise goals

14. Thank you
• Questions?
• Deborah can be reached at
DHMidanek@SolonGroup.com