Michaela Bearden:

During times of change and transition, effective board members will seek out answers. They’re going to be really curious, by supporting development, they’re going to manage some of the conflict between meetings, and with tact, they’re going to ask the hard questions. You don’t want a board member that isn’t willing to push back. You want somebody that’s going to be engaged, ask the hard questions because your family’s success really hinges on their involvement.

Stephanie Larscheid:

Welcome to Family Business Connection, a podcast that uncovers the stories behind family businesses where business leaders share how they navigate the unique challenges of working with loved ones while building a lasting family legacy. I’m your host, Stephanie Larscheid of Prairie Family Business Association. Today’s episode was recorded live during our 33rd annual Prairie Family Business Association Conference with a sold-out audience and an amazing collection of guests and speakers. We’ll be talking about the tips and knowledge needed to be a good board member and the benefits they can bring to your family business. I’ll be joined today by InnerWill’s Dr. Michaela Bearden and Angelika Olsen. InnerWill, the sponsor for this episode is a leadership institute focused on developing business leaders through the practice of values-based leadership. We’ll jump right in with Angelika talking about the three ways a board can support the success of a family business.

Angelika Olsen:

Firstly, to support a family business, the board needs to really understand that they’re operating in three overlapping systems. There’s the shareholder system, the business and the family. So where they’re working is within that intersection of those three different systems.

Secondly, the business strategy really needs to connect with stewardship and legacy because really long-term continuity is the ultimate goal.

And lastly, I think their focus needs to be on the long-term. You mentioned a long horizon. It isn’t about quarterly or even annual outcomes, but generational outcomes. Their decision-making horizon can span 50, even 100 years. So really to put it simply, their role is to act as long-term stewards, the board’s role. To do that well, an understanding of the family’s values is key. And then their job is to make decisions that balance the interest of the owners and the business and the family.

Stephanie Larscheid:

When you talk about the things that the board can do to support the success, tell us about what the board can do to help the business be successful and the family be successful?

Angelika Olsen:

Okay, sure. So probably the main thing and very important is to gain the alignment on vision and mission of the owners and the management and the board. So if all three of those different systems are aligned, success is far more likely. Something we don’t do nearly enough, and that is disagree. So that might sound negative, but if a board member disagrees, that means they’re expressing opposing ideas and that creates discussion or debate, which then encourages new thinking. Another thing that a board member can do to be supportive is open doors and provide resources. Bring your own unique expertise to the table. I’ve got a few more.

Stephanie Larscheid:

Yeah, we’d love an example too. Give us a story.

Angelika Olsen:

Yeah, I’ve got a story. So it’s really important for board members to not choose favorites, to be objective and at InnerWill, we had a situation where a client whose board felt that their main role was to support the CEO, and that went fine for a long time as long as the CEO and the family were in alignment. What happened eventually is that the CEO gained too much power because the board kept rubber-stamping everything. Eventually that CEO went … Well, he ran rogue is a nice way to put it. In the end, it wasn’t the best thing for the family or the business, and there were huge financial losses that went into the millions. The company nearly collapsed. So that’s why disagreeing is sometimes important, often important. And finally, also important is a clear leadership … Is the clear leadership in times of transition or crisis. That can be achieved by simply being transparent, keeping all stakeholders informed.

Stephanie Larscheid:

That brings up a really great point, and I love the story that you talked about with the CEO relationship with the board, and there’s some parameters and there’s some things that can help that too in terms of job description, the accountability, making sure that people aren’t favoring one individual in the business because their goal is to look out for the best interest of the company.

Angelika Olsen:

So I do have a short list. Would you like me to add that or …

Stephanie Larscheid:

Yeah.

Angelika Olsen:

Okay.

Stephanie Larscheid:

Let’s hear what you have to say there.

Angelika Olsen:

So important for best practices to follow for a board is that all members are truly, strongly engaged. It’s important that agendas are linked to the strategy. So what they’re working on has to fit the overall strategy of the family business. There needs to be established roles for each board member and expectations for each board member. Performance reviews are a good idea and feedback is necessary. Clear term limits, like how long should a board member be in place or how long should a chair be in place? Appropriate pay. So this brings up a thought. I worked with a family business that paid their board members $3,000 a year, but they learned a little bit too late that that just wasn’t really enough to create a board member that felt engaged and fully committed. So that was a mistake. They did make those changes and they had better results when they were more committed to their board members as well. Basically, the board needs to function like a team.

Stephanie Larscheid:

Yes, very much so. Which includes a lot of processes and procedures when you’re functioning like a team, when you’re in a board environment. When you think about what the characteristics are of an effective board member, this title today is called How To Be A Great Board Member. What are the characteristics of a good board member?

Angelika Olsen:

Well, that’s a great question too. So a board member needs to be willing to do their homework and be prepared for meetings. There’s a lot of work that happens between board meetings. Michaela will touch on that more. Important also is to be objective, not playing favorites. They need to represent the needs of all the stakeholders, not just their favorite choices. So another thing is to be comfortable with conflict because there’s a big difference between consensus and alignment. And if you can’t recognize that everyone’s just agreeing to get along, there’s this phrase, go along to get along. You’re really not focused on growth or the next best idea if everyone’s just agreeing to avoid the conflict. So to know the difference, that’s important.

Stephanie Larscheid:

Very much so.

Angelika Olsen:

Also important is that all the decisions the board is making or needs to need to be around or directed by the family business values, the business family’s values. And then here’s my favorite. I like to say ask questions that are provocative. So much like disagreeing, ask a lot of questions. And then those questions are often best if they start with the word what. For example, what does stewardship look like for this generation? Or what assumptions are driving our decisions on this topic? So if you ask that kind of question, you’re really opening the discussion instead of asking a yes or no.

Stephanie Larscheid:

Yeah, that can create some more robust boardroom discussions, which is really helpful. And you talk about the decisions being directed by the family’s value system, which is critical. And one tool that we teach in Prairie Family Business Association is using the owner plan or the owner manual to drive some of that decision making, and that is a united voice that the family can create through that owner plan, owner manual to create the vision forward, that then the board can use in some of their advisement. Michaela, talk about the role of a board member in between meetings. Obviously a board member is expected to show up to meetings three, four times a year, adequately prepare. What does it look like in between meetings?

Michaela Bearden:

I really love this question and I had to laugh when I heard it because the answer is do something. Be engaged, don’t just show up at a meeting. What happens in between the meetings really is the meat, it’s the dash of life. So you don’t want to be idle. That means taking initiative even if there isn’t high direction and sometimes there isn’t high direction, you have to take initiative. The board meeting itself is an opportunity to use the collective wisdom of the group. It’s to make strategic decisions. And it’s hard to have that productive meeting if between that time your board is disengaged. Two opportunities that we can talk about today for in between meetings include intentional engagement and support during transition, particularly complex transition.

Stephanie Larscheid:

Yes, very much so. What does that look like in action?

Michaela Bearden:

Yeah, sure. So for intentional engagement, it’s going to vary by board. Oftentimes it’s going to include talking with the CEO to best align with whatever strengths you bring as a board member to the needs of the organization. We worked closely with a CEO who had a real love for working with next gen. And so between meetings for him, it looked like meeting with next gen, talking to them about their strengths, their vision for the future. In one case, we had a board member that helped a next gen leader identify a coach because they were having some developmental challenges and they really wanted to be successful, but they didn’t know how. And so they leveraged the relationship that they had with their board member to identify a leadership coach that really helped them take what they hoped to bring to the organization to the next level.

In another example, we had a board member serving as an advisory role for an employee initiative that they wanted to roll out. And so you can get really creative about how to involve board members. Sometimes you have to ask them, but it really should be on the onus of the board member also to take that initiative themselves.

Stephanie Larscheid:

What about for transitions?

Michaela Bearden:

Yeah, so especially for complex transitions, which we know all families have periods of complex transition, and the board member really does play an instrumental role in creating perspective. A non-family board member plays a really important role on providing an external ear. During times of change and transition, effective board members will seek out answers. They’re going to be really curious, by supporting development, they’re going to manage some of the conflict between meetings, and with tact, they’re going to ask the hard questions. Like Angelika said, you don’t want a board member that isn’t willing to push back. You want somebody that’s going to be engaged, ask the hard questions because your family success really hinges on their involvement and how they provide that support with the industry knowledge that they might have outside of your business.

During a recent G3 to G4 transition, the G3 really leveraged their relationship with a board member that knew the family really well, really saw the G4 member rise up through the ranks. And when the G3 member had some conflict or made some assumptions about how the G4 new leader was going to lead, the board member stepped in, checked assumptions, asked hard questions, really challenged them, is this something that you’re assuming because you’re still seeing this individual as a child or is this something that really is going to affect their leadership? So a board member has an opportunity to really serve as that bridge between generations as they transition?

Stephanie Larscheid:

That’s a great perspective and a way to talk about next gen development and also senior gen and how that person, that independent fiduciary can be very helpful. If a board member is engaged in between meetings, what will we notice?

Michaela Bearden:

So you’ll notice it in the board meeting. So there’s only a few of you that might notice it in between because there’s only certain people that are going to be engaged with a board member between meetings. But in a board meeting, when the board comes back together, the conversations shouldn’t be starting from scratch. When a board member takes action between the meetings, we get informed, focused and productive conversations. We make decisions. When a board member acts as a bridge, they really serve as that steady voice keeping the momentum going. As a board member, if you start to find yourself silent between meetings or even in meetings, it’s time to check your intention. It’s time to have a difficult conversation and make sure you are being engaged in the right way. You don’t want to waste the family’s time and they don’t want to waste yours. And so if you’re finding yourself stepping back and not being as engaged as you should be, say something.

Stephanie Larscheid:

That’s a great point, and I think that that’s really critical, especially when you’re in a situation where the board may not have terms or the board may have just existed for a long time because the business has been around for 50 years and you’re inheriting a board that parent or grandparent may have created. That’s a great point.

Michaela Bearden:

It’s also when you’re shifting right from an advisory board to a fiduciary board, when you start having some of those larger conversations about what policies and procedures you need to have in place to set board limits and to start having those bigger conversations. You don’t want your best friend to then be maybe making some of the bigger decisions when they still see you as a friend instead of a fiduciary member of the board.

Stephanie Larscheid:

Very, very critical. What are some of the best practices for a board member to educate themselves on issues related to the business and the industry? How can they go about getting good education?

Michaela Bearden:

Sure. So again, critical piece of things that a board member should do outside of the board meeting. When someone’s approached to serve on a board, it’s not just professional. The family is showing you that they trust you. So that deep sign of trust, you all know this best. Family businesses are personal, and so you should be honored and you should do due diligence and make sure you’re as educated as you can be. Board members need a clear understanding of the business, the industry and the family, and they bring a unique lens that a family member may not because they work outside of the family business, they don’t have the experience, the stories, the history that the family members have. So a non-family board member that comes into the business really can provide that unique lens and they can bring their expertise in, and that’s really important. The more educated they become about your industry and your family business, the better positioned they will be to listen deeply, to notice the unspoken dynamics that the family might be blind to, and then also apply their subject matter expertise.

Stephanie Larscheid:

When a family business board member is taking it upon themselves to provide some of that education, we’ve seen a really good example in one of our recent webinars where a family business has a board and there’s a board member who regularly is sending out articles to the rest of the board. And he’s saying, “Hey, read page two of this five page document. It’s really helpful for an issue we’re dealing with, or something that’s coming down the pipeline for us.” He’s taken it upon himself to educate the rest of the board members and the family ownership, and it’s great to play that role, to have somebody source some information and say, “This was really helpful. Take a look at it. I’ve highlighted the parts that apply to us. This will be really good to discuss when we’re together.”

Michaela Bearden:

Yeah, I love that.

Stephanie Larscheid:

How about learning from the family?

Michaela Bearden:

We know every family’s unique. An effective board member is going to learn about the family’s history and values. And for longstanding board members, you might assume they already know this, but it’s really important to go back to the roots, to make sure that board member truly understands how the family was formed, how the business was formed, and how that foundation carries through to the trajectory of where you are today in business. It’s between meetings, it’s reading the company’s founding story, identifying articles like Stephanie said, and making sure you’re sharing that with other board members. It’s reviewing past family council reports and understanding the succession plan or help crafting the succession plan. It might include informal conversations with family members that you don’t get to talk to very often. You can learn so much from family members that are involved and not involved in the family business. So look for opportunities to form that connection. The goal is really to gain insight into their legacy, the family’s legacy, the family tensions, and of course the longterm vision.

Stephanie Larscheid:

How do you know if the board member is dialed in in those ways?

Michaela Bearden:

As an output, what you should notice is a deeper connection. You’re going to feel that trust one-to-one. You’re going to see that board member, they’re going to ask questions that show that they understand the complexities of your business in the moment, and they’re going to share with you articles that they’ve seen. Again, like you’ve said, you’re going to be able to notice whether they’re engaged or disengaged just through how they’re paying attention to your family’s priorities in the moment. In a board meeting, it’s going to be asking the difficult questions, it’s going to be helping make those strategic decisions. And like we shared from the start, being a board member is such a serious role, and building trust is at the foundation of it for a successful engagement. So you really want to be able to feel that trust. If you don’t, talk to other members of the family and see if they feel as engaged, if they don’t have a conversation with the board member.

Stephanie Larscheid:

And there’s a lot you can do to develop that trust upfront when they’re going through the application process, the interview to be a member of your board. There’s a lot you can do to establish, do we align our values in sync? Is this going to be a good match? I also want to take a moment to say thank you to this podcast episode sponsor InnerWill, and InnerWill does work with values-based leadership. And one of the great examples that came up during this conference was Robert Pasin was our success story. He was our opening keynotes, the Chief Wagon Officer of Radio Flyer, generation three, and he told a story about his dad and how his dad showed up at work just like he did at home, and that creates some joy, that creates some frustrations. But what Robert appreciated about his G2 father was he was the same person when he was making business decisions or when he was sitting around the dinner table at home.

Something I appreciate about the work that InnerWill does is your insights assessment. And one of the outcomes of the insights assessment is how do I show up at work? Do I show up how I think people want me to show up or am I showing up as my true authentic self? And InnerWill leads our family business retreat, which we’re offering in August. Betsey Fortlouis will be leading that for us for the InnerWill team. So values-based leadership in action, and I appreciate that about InnerWill. So I want to say thank you. What does an effective board chair do? That is a big question that we get asked. All right, I’m board chair. I might be the patriarch or the matriarch stepping away from a day-to-day role, and now I’ve been appointed board chair either because I want it or because I’ve been appointed that. What does an effective board chair do?

Angelika Olsen:

Right. Good question again. So aside from facilitating the board meetings, the chairperson is responsible for setting the norms that establish the healthy culture. So productive behaviors within the board could be broken down between behaviors and responsibilities. So let’s break it down for you. Starting with behaviors, they would broadly … The board chair should reinforce the stewardship as the board’s central mission. Remember at the beginning we talked about aligning the mission and the vision with the family business or with the family. So the board chair needs to constantly keep that in the forefront, that alignment is important and that they are there as long-term stewards. There’s also, the board chair needs to be a well-adjusted, emotionally intelligent leader and display curiosity or respect and humility consistently in their leadership role. And then the last thing that comes to mind is as the chair, it’s important to encourage healthy disagreement, which we talked about before. We don’t want everyone agreeing just to not be in opposition, but open up an opportunity for thoughtful dialogue on difficult topics.

Ultimately though, the board chair is to ensure that the business is well-run by building a competent management leadership team. So the chair leads the board in evaluating and developing executive leadership successors with regard to the needs of the business. So again, planning ahead, developing the team, developing the management team and identifying their strengths.

A little story here. I worked with a family who was a fifth generation and their board chair had been the chairperson for 35 years, and they thought, “This is great, such stability, we know exactly what to expect.” But when that board chair retired and stepped down, then they realized they had a problem because they hadn’t developed the next person to take that role. So as much as it’s great that you’ve got a solid chair, you also always have to be thinking about developing the next people for leadership.

Stephanie Larscheid:

That’s a great story and a very important piece of the board. One story similar to that that we came across was an owner and a key non-family manager were participating in one of our education sessions, and the key non-family manager said, “I don’t know what the succession plan is for me. I don’t know what owner is going to do. I’m not sure.” And the challenge back to that individual was you need to figure it out. As key non-family owner that … As a leader on the management team, you work on your succession plan. You don’t wait for someone else to tell you what that looks like. What else is important for the board chair to focus on Angelika?

Angelika Olsen:

So the chair’s responsibility is to lead well, and a well-led objective board will provide valuable feedback on the capabilities and the development of potential successors. We touched on that. And then also it includes building and maintaining the trust with the CEO, the family leadership and the shareholders. So the board chair should engage in one-on-one meetings with all of the stakeholders. It’s crucial for building the trust, and those one-on-one meetings allow for dedicated space for communication, for feedback and relationship building.

One director that I know made a point of connecting with the next gen family members after every board meeting and very simply would reach out to them and individually ask, “What did you hear?” Again, a what question. “And what questions do you have for me?” A lot of time those younger board members might be intimidated to ask questions, but in a one-on-one environment, they might feel more safe to ask a silly question maybe that they’re afraid to ask. So anyway, by building that kind of rapport.

And then the other thing is this is a really nice informal way to have one-on-one connection with family or management members is after each board meeting, there was usually a meal served. And so this chairperson would always sit with a different family member at each meal to build that rapport and have those casual conversations.

Stephanie Larscheid:

It’s a great way to be intentional about the role and the mission.

Angelika Olsen:

It worked for her.

Stephanie Larscheid:

When you talk about next generation development, that was a great example. What else do you think about in terms of the role of a board and preparing the next generation?

Michaela Bearden:

Yeah, so the first thing about next gen is I think I’m just really proud of the industry and how they’ve adopted more of a formal approach to developing next gen leaders. It’s not something that used to exist at all. So it’s really cool to see us embrace how we can make it a little bit easier for the next gen to step in and lead. It’s not just about passing the torch. It’s about shaping a leader who can carry that torch forward into that new era and recognizing the new challenges and opportunities that are going to come with it that we can’t predict. Well, I grew up in a family business where my father and uncle G2 didn’t have an opportunity of whether to say yes or no to that family business. And for a while it worked really great, they were incredibly successful, but it cost our family the relationships.

And unfortunately I’m part of that statistic that didn’t make it to G3, and I really do, looking back in retrospect, I can tie it to the fact that my dad and my uncle really had no development at all in how they should behave together as owners, how an owner transitions business to their child. And I’m a living example of I would’ve loved to take over the business, but it just wasn’t an opportunity for me. And so I just really appreciate how much attention we’re giving to it. And so when we think about specifically how we can support next generation development as board members, create mentorship opportunities, don’t leave it just on the family as subject matter expertise or experts. Pair next gen family members with board members and senior leaders. Think about the strengths and interests and help identify that match in a very intentional and succinct way.

Second, involve them in strategic projects. They don’t have to be out of high school to participate. They have really good ideas, they’re really smart. And the sooner you can get them passionate about the business, the better. They might be able to participate in specific initiatives. Again, align it to their passions to spark that interest.

Finally, as a board member, get to know them. Don’t overlook how far a simple conversation to go taking interest in a young person. Be curious, learn about their interests outside of the business. Not all conversations need to be structured. Curious questions go a really long way, and they demonstrate trust and then demonstrate to the next gen leader that you really are invested as a board member. Succession isn’t a transaction, it’s a transformation, and it’s a really important point to make as a board member.

Finally, next gen development really isn’t about preserving a legacy exactly as it was. It’s about equipping the next generation for the future. And board members have a huge responsibility in that effort.

Stephanie Larscheid:

We often see boards go to a board observer role too, where the next gen can sit in an observer seat for a portion of the board meeting to prepare them for their future role as an owner or a board member.

Michaela Bearden:

Yeah, absolutely. I think that’s a great recommendation, and we love seeing boards that are engaging in that way.

Stephanie Larscheid:

One topic to touch on is some of the pitfalls that board members may get into, and an example that we’ve all witnessed that probably there’s a couple of examples of families that have fallen into this. One pitfall that we really want to warn people to avoid is getting in alignment with a family member, and serving that family member rather than serving the best interest of the business. And when you’re a board member, your job, your role is to make decisions, ask questions in the best interest of the business and not in the best interest of an individual. Whether that individual is a owner or the CEO. It’s a big pitfall that we advise to avoid.

Michaela Bearden:

Yeah, absolutely. And that’s the responsibility of the board member, but as you make other connections on the board, hold each other accountable. If you’re recognizing that someone else on the board is overstepping or creating a dual relationship that’s really inappropriate, you have a responsibility to speak up.

Stephanie Larscheid:

And when we say that, it might even be so far as that the individual, maybe there’s some side meetings happening where that family member is advising the board member to make recommendations or decisions that are in that individual’s best interest. So just to avoid getting into those situations and scenarios. What closing advice would you each give to a board member of a family business? Angelika, let’s start with you.

Angelika Olsen:

Okay, sure. So I would say read, read, read. There are a lot of good books about family business, and there are a lot of good articles out there. They’re a little hard to find, but they are worth your time and you can really educate yourself. So get some knowledge from what’s available out there. Also possible is to get outside support, like pursue leadership coaching with people like Michaela and myself from InnerWill. Very often board members need some support because it’s a big job, and to have your own personal coach help you with your leadership is a great option. And then last, learn and maybe attend the Prairie Family Business Board School.

Stephanie Larscheid:

Yes, we have great education for board members and for families wanting to start boards. Thank you.

Michaela Bearden:

Like Angelika said, it is a big role. Be fair to yourself and to those whom you serve. Have fun. Don’t take everything so seriously. And finally, if your reason for serving no longer serves you or the business, step away, or at least be willing to have an honest conversation with the rest of the board about your intentions for the board. You’re not doing anybody a favor by staying on longer than it serves you or the family or the business.

Stephanie Larscheid:

Michaela and Angelika were fantastic speakers to have speaking at the conference. It’s amazing to hear their insights into the transition through generations in a family business, and the role the board can play in succession planning. If you’re looking for more information on how you can attend our next family business conference or to gain more information on boards, visit our website at fambus.org, that’s F-A-M-B-U-S.org, and follow us on social media for more board insights.