TWO-WAY STREET Zellweger says a dual-board system brings multiple advantages. Firstly, the supervisory board offers external insight and high-level networking opportunities thanks to its non-family members. Secondly, the board can control the management,
which is especially important if there are no family members within the company’s upper echelons. “You have a strong counterbalance to
management that may have its own interests about how the company is run,” says Zellweger. A third function of a supervisory board is as a
meeting point for family members, mediating and smoothing over potential differences, especially as different branches of the family are often represented. Through this role, the board also acts as a buffer, insulating management from feuds between owners. This may be particularly important when
ownership is split between many family members, with Zellweger highlighting the German group Haniel, which has more than 600 family shareholders. “The board is particularly helpful to buffer the
family interests that may come from these different shareholders,” he says. Some of the challenges particular to family
businesses centre on conflicts between the varying priorities of ownership, business, and family, as Peter Klein, a professor of family-owned businesses at HSBA Hamburg School of Business Administration, puts it. “This board should help and assist, help to solve
conflicts and to put priorities when ‘family’ and ‘business’ might be in conflict with each other,” says Klein, who has held senior roles in a number of well-known family businesses. “Single board constellations are not helpful at all
in solving these conflicts.” A fourth role of supervisory boards is what
Zellweger describes as “a professionalising function”, which can be especially helpful when family owners take “positions in erratic ways”. But there are downsides of having a supervisory
board, including administration costs and the need to pay members.
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You have a strong counterbalance to management that may have its own interests about how the company is run
“And obviously it may slow down decision-
making. You are creating a bureaucracy so decisions have to go through the board,” says Zellweger. Indeed, there can be multiple layers of decision-
making, says Professor Morten Huse, a professor in the Department of Communication and Culture at BI Norwegian Business School. A family council, a management board, a supervisory board, and a shareholders’ meeting adds up to four levels. Another concern is the asymmetry of information
between management and board. “If you do not work inside the management, you
are completely dependent on the management. The management is much better informed about what is going on,” says Zellweger. “That could be exploited: They [the board] may
only have information about positive things. The board, it could just be a rubber stamp and not be a good monitor.” Another circumstance where the board might play
a limited role is where there are family both on the board and in the senior management team. “In the German case… [there may be] family in
the supervisory board and other family members in the management. In that case the family is still deciding more or less what is taking place,” says Huse. Owner-managers may sideline the board by
making decisions without consulting it. An experienced board member of family firms, Huse has first-hand knowledge of this, and once even decided to stop chairing a board as a result.
Top, from left to right: Patricia Angus, of Columbia University’s Columbia Business School;
Peter Klein, professor of family-owned businesses at HSBA Hamburg School of Business Administration
Opposite, from left to right: Sian Steele, head of the family business team at PwC;
Thomas Zellweger, Professor at University of St Gallen in Switzerland
ISSUE 73 | 2018
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