Strengthening the Family Business Board

Founder-led and family businesses are a major force in the economy and communities across the United States, with more than 32 million businesses providing 83 million jobs and generating more than 50 percent of US private-sector GDP. 

Family founders are committed to the long-term success of the firm, yet transitioning the family business to the second and third generations is a significant challenge. Only about 30 percent of family-owned businesses are passed down to the second generation. The challenge of succession is only heightened during a time of increased economic disruption, technological change, and the current wave of retiring baby boomers. NACD 2021 Private Company Director of the Year Lynn Clarke notes, “Having a majority-independent board of directors is one of three elements that help to ensure multigenerational business success. The other two are a robust strategic plan and an effective Family Council.”

Good governance, facilitated by an engaged board of directors, can help family businesses navigate generational change, adapt to a dynamic business environment, and manage the complexity of a growing company. Directors who provide active and objective oversight, and who bring their perspective, skills, passions, and experience to the boardroom, strengthen the family business. An effective board has the composition and governance practices to meet the unique needs of the business and contribute to its long-term sustainable performance.

This Director Essential sets out key considerations related to strengthening the board through the creation of more formal governance and the addition of independent directors—and it helps family business leaders consider whether developing a fiduciary board is right for them.