When a corporation is formed, there are several steps required or suggested in forming the structure, including the creation of a Board of Directors.  Some family business owners consider the Board to be too formal a structure, and think more in terms of the family running the business - hence "family business."  But Strategic Planning for a business, whether or not a family business, is more likely to be comprehensive and well thought out when looked at carefully by a group whose focus is the good of the business.  Not forming a Board or other structure will not protect a family business from experiencing a negative result from a poor decision - or from indecision. 

The Board of Directors protects the interests and assets of the family business.  As in a family planning structure, members of the Board of Directors for the business would naturally include the owner(s) and key family members also active in the business.  But keeping in mind the idea that the family is not exactly the same as the family business, there are often non-family members of the business who greatly contribute, and have much to offer for strategic planning and other decision making.  These team members should be considered for the Board, just as non-family members may be considered for key positions in the family business.  The value of experience outside of the family business cannot be underestimated, including those who are not currently working there.  Other independent Board members may include an attorney and other professionals - having a diverse group of people with a wide range of experiences and points of view is helpful when the Board is planning for the future of the business.

The Board of Directors may serve many purposes depending on circumstances of the business, but there are primary strategic planning functions a Board can handle where family businesses experience more conflict than other businesses:

• Succession planning
  although it seems intuitive that the family should guide who runs a family business into the future, these decisions affect all members of a business, and there should be oversight on matters that affect the business.
• Capital needs
  how money is borrowed for expansion, who decides where spending should be directed, etc.
• Pay and income distribution
  how compensation is determined for hiring, raises, bonuses among all employees.

The issues above may yield different responses from the Board of Directors and the Family Council.  This is how it should be, as the wants and needs of the family are likely to be different from those of the family business.  This is why strategic planning for the business needs to be separated from planning for just the family, and why those two planning entities therefore interact as organized units.  The Board may then challenge the Council regarding strategic needs and negotiate solutions that suit both groups.  Pretending that differences between the family and the business do not exist does not preclude problems from surfacing, and a well-considered formation and role of a Board of Directors is an important starting point.

It is important to note that the structure and role of a Board of Directors may vary greatly depending upon the size of the business, the official legal form (e.g., Limited Liability Corporation, Corporation, S-Corp, public or private), and the laws of the state(s) where the business is located.  Planning for the creation of the Board should take all factors into consideration.

NOTE: The information contained herein in this article and on this Web site is not intended as legal or financial advice.