Fireside Chat #3 With JB: Navigating Governance Challenges in Family-Owned Real Estate Businesses

We’re back with another fireside chat. Today we’re focusing on family-business boardrooms and governance.

Kelly: Jennifer let’s kick things off by looking at the role of external board members. What’s your view on this? Good or bad idea?

Jennifer: Long term, it’s a good idea. External board members are like a breath of fresh air. They’ll bring expertise from different roles and industries. They’ll bring their battle scars from leading a business through challenging times. They can use their wisdom to help answer the tough questions that need to be addressed. And they’ll push challenging issues, such as having a robust succession plan for the next generation.

However, a 2023 by PWC reports with 78% of respondents saying that protecting the business as the most important family asset is their top long-term goal for the next five years (82% globally) and 72% want to ensure the business stays in the family, succession planning needs to be a priority. In 2021, only 34% said they had a robust, documented and communicated succession plan in place.

Short term, many families have lots of barriers to bringing on independent directors. They may not want to share their financial information with outsiders. They may fear having their decisions looked at closely by outsiders. They may think they don’t have the money to pay an independent director. Or they may think they are doing just fine without independent directors and don’t want to upset the current status quo.

Kelly: Fascinating! What about having family members on the board? How is their role different from independent directors?

Jennifer: Family member owners are essential to successful board governance. They understand the family dynamics and the business’ contribution and reputation in the local community. They are ambassadors to other family shareholders about the business.

Oftentimes, family members may not have the depth of business experience independent directors have. Regardless, each plays a significant role in successful board governance.

Kelly: What are some of the, shall we say, more delicate issues around having family on a governing board?

Jennifer: One of the big challenges is deciding who is considered family? Are spouses? Live-in partners? Can both a family member and his/her spouse sit on the family business board? At what age could a family member be considered for board membership? What happens if a couple gets a divorce?

Some families shy away from having spouses on the board to avoid complicating matters. Others think spouses are ok; live-in partners are not. Oftentimes, if spouses are ok, then they can’t serve at the same time as the family member to whom they are married.

Whatever you decide, having clear policies is key. They’ll provide clarity when dealing with the unexpected, if it happens.

Kelly: Can you expand on that a little?

Jennifer: Boiling it down, ultimately, we’re talking about safeguarding the stability of the business during emotionally charged times. I like to think of governance policies as the guardrails on a winding mountain road. They provide a structured path for everyone involved.

In one family I worked with, the family and board members who were leading the respective companies did not want to even consider non-family board members. When it came to spousal involvement, they trusted the spouses and realized they had things to offer the companies. They also realized that having clear rules was like having a safety net. They had two: first, if you separated, you’re off the board and second, couples could not sit on the board at the same time. These rules created boundaries and a protocol for dealing with personal matters without disrupting operations.

Kelly: So, it’s about maintaining that delicate balance between personal and professional matters?

Jennifer: Yes. Businesses thrive on stability and predictability. When emotions are involved, having predefined rules means everyone knows what to expect. Some might find that cold or detached. It’s not. It’s about creating a framework that keeps the business running smoothly, even when family members face personal challenges like divorce or separation.

Kelly: Thank you, Jennifer.