Board’s role in a family business

What is a board’s role in a family business?

When news broke that the government of Uganda intended to use 1 trillion shillings of taxpayer’s money to bail out defaulting businesses, what was common with most of these businesses was that they were individually or family owned.

Individual and family-owned businesses are a vital part of our economy. However, their governance model is almost exclusively dependent on what the founder (or family members who control the company) wants. Therein lies the shortfall. It is important that individual and family owned businesses consider setting up boards with outside/ independent directors if they are to stay afloat and avoid going-concern exposures. 

I often ask founders of family businesses, ‘if you don’t have a board, who do you have to challenge what you’re doing especially where family and personal issues become intertwined with the business?’

 Independent directors can assist with some of the particularly challenging issues family businesses face since they can speak without fear of repercussion (other than being removed from the board). This allows them to feel freer to raise sensitive issues which may help cut through the ‘emotional noise’ that’s prevalent in many family businesses. 

Having more than one independent director may be helpful as they provide more alternative points of view on an issue the board is discussing.  It’s all well and good to talk about the value a board can bring, but it’s not unusual for founders to have concerns about adding individuals to their board who aren’t either family members or close friends. Concerns may vary from cost implications, loss of control, confidentiality and trust. If cash flow is your problem you could consider equity like vehicles for director compensation. However you choose to compensate directors, you can assess whether they are bringing the value you need through board evaluations. 

If you’re the controlling shareholder you still get the final say, regardless of what your board might suggest. You can also draft your delegation of authority policy to preserve the decisions you want to take. On managing confidentiality, you may consider having the directors periodically sign a non-disclosure agreement.

Overall, companies have failed when they missed the implications of a changing business or strategic environment, or were unsuccessful in their expansion efforts. It’s worthwhile for whomever is running a family company to consider getting input from a board with outside directors that can help preserve the discipline, principle values, and ethics that play an essential role in the success of your family business. 

By Adam Sengooba Associate Director, Risk Assurance 


Contact us

Doreen Mugisha

Doreen Mugisha

Manager - Clients and Markets Development, PwC Uganda

Tel: +256 (0) 312 354 400

Follow us