The boards of family businesses are missing out on an important talent pool, with two thirds holding less than 30% females.
According to US research by Deloitte, Perspectives on family-owned businesses – Governance and succession planning, family businesses are failing to pay adequate attention to governance, board operations and succession planning, underutilising external expertise and female talent and thereby affecting their productivity and long-term success.
“In Australia, family-owned businesses may have a suitable board of directors, but the question needs to be asked if they are applying optimal governance processes. Boards need to be evaluated and assessed according to how much value they bring to the table and the long-term performance of the business,” says Michael Clarke, Deloitte Private’s chief operating officer, noting that the US research is “anecdotally representative of the Australian market”.
“There is a danger of limiting family business’ productivity by underutilising external expertise,” Clarke says. “The role of external board members is vital and adds a valuable and independent commercial perspective.”
The survey of 222 family-owned businesses (93% senior executives) with annual revenues from $50 million to over $1 billion revealed that two-thirds of boards have fewer than 30% female membership, 28% have no female board members at all and among the companies with revenues between $200 million to $500 million, the number without female board members jumps to 48%.
“Corporate Australia has a long, long way to go, but it seems to be getting its act together. [Female representation] is on the agenda,” Clarke says of the lack of women on boards generally.
“But in private business and the family business sector, it’s just as important if not more important … but it’s not as well acknowledged or evolved. The family business sector is lagging the corporate sector.”
In addition to a lack of female representation, the research highlighted the importance for family businesses of setting up a board of directors in the first place and the importance of a board’s composition. According to the survey, more than a quarter (28%) of family businesses don’t have a board of directors at all, and of those that do have one, only 39% are controlled by a majority of non-family, non-executive directors. The boards of most family businesses are predominantly made up of family members, with 42% indicating that family comprises at least three-quarters of their board.
“Having some sort of governance structure gives a sounding board, an outside perspective and it helps take the heat out of situations,” says Clarke. “It eliminates the emotion. That’s one of the big things with family businesses – the complexity of an enormous amount of emotion.”
The research also showed that almost half (49%) of family businesses only review succession plans when a change in management requires it and 41% don’t have a contingency plan when it comes to safeguarding their leadership – factors that can be particularly detrimental to a family business, according to Clarke.
“Australian family businesses are finding that the operational demands of running their business can be all-consuming. It’s therefore important for family business owners to take the time to consider how the oversight of a board may improve their business and to groom the next generation of leaders.”