Development and maintenance of board structures and practices in small to medium sized family businesses: An exploratory study

Abstract

This paper reports on an exploratory study of how Australian small to medium sized family businesses are approaching one key aspect of effective governance, namely the establishment and maintenance of functioning boards of directors. The research sample consists of a convenience sample of nine family business cases to represent a range of experiences with board formation and operation, and those with non-independent (family) directors and others which included non-family (independent) membership. From the study, it is suggested that advantages of established boards in the family business include: enhanced performance and compliance; providing reassurance to shareholders that there is an objective and professional approach to the business and their assets; and augmenting management expertise by appointing people with complementary skills – usually, non-family non-executive directors. Disadvantages of formalised boards include: that they act as defacto management committees and more as mediating bodies to minimise tensions between family members; that owner/managers perceive that they will lose control of the business and flexibility of approach; and that the board function is considered a waste of time and money, especially where people – usually family members – are appointed without appropriate director’s skills. In cases without established functioning boards, interviewees did not perceive that there were gaps in meeting their corporate responsibilities in terms of accountability to shareholders, setting strategic direction, monitoring of results or setting policy although interviews demonstrated that this perception may be incorrect.