An Independant View for Family Businesses

In his latest blog  Sam Lyon, Head of Corporate and Commercial at Cartmell Shepherd Solicitors examines the benefits that an independent voice can bring to a family business.

The value of non-executive directors and other non-family senior management can bring to a business has long been recognised in publicly listed companies and the wider private business community.

For family businesses in particular, the input of independent senior level people can be invaluable.

Non-executive directors can add value to a business by bringing an outside perspective. Given their nature, many family businesses can be inward-looking. Directors and other family members in senior roles may have little or no experience of business in any other context except the family business itself. This can limit the breadth and strength of ideas and challenge, to the detriment of the family business and its future prospects. Examples of how the wider experience of the right non-executive director can add value to a family business include expansion into new products, markets and sectors, recruitment of non-family executive roles, and raising finance.

An independent non-executive director will also be able to provide an impartial view on business matters which are sensitive due to their family nature. These include the appointment of family members to specific roles; remuneration of family members; performance management of family members; board appointments and other senior promotions where there are multiple family members in contention.

A non-executive director can also assist with succession planning by independently evaluating the skills, qualifications and experience needed to lead the business in the future. Would the business best be led by a family member and, if so, which one?

There are a number of factors to consider when bringing non-executive directors and other non-family senior management into a family business, these include:

  • Terms of engagement: Will they be employees of the business or a self-employed consultant? In addition to the nature of the role, consideration should be given to how they would exit from the business if necessary. Also consider the duration of the appointment, any confidentiality clauses, the time commitment expected for the role, remuneration, and relevant skills and expertise.
  • Will they hold shares in the company or be entitled to in future? If so, on what terms? In particular, how would the position be unwound if they were to leave their role in the business?
  • Non-executive directors and non-family members will provide the most value if they are truly impartial. Ideally, they should not be appointed because of links with a certain family member or the business’ professional advisers, which may be barriers to true or perceived impartiality.

For further advice please contact Sam Lyon, Head of Corporate and Commercial, at Cartmell Shepherd Solicitors, 01228 516666; 07584 341974; sam.lyon@cartmells.co.uk www.cartmells.co.uk

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