Director Independence on Family Business Boards

In brief: Family businesses traditionally tend to favor boards composed entirely of family members and, therefore, company insiders. However, independent directors can be a valuable addition to a family company's board due to their professional expertise and ability to offer fresh and objective thinking. This memo addresses the advantages of incorporating independent directors into family business boards, how to respond to objections to changes on the board, the process for adding independent directors, and the related fiduciary duties of family business directors.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.