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On the board’s agenda | Global
Private company governance
A board of directors or advisors can be a valuable resource for a private enterprise, bringing diverse perspectives, knowledge, and experience to the boardroom.
On the board's agenda
Welcome to On the board’s agenda, a publication where we focus on topical issues of importance to directors. Each issue examines a single topic in detail, and includes the perspectives of a Deloitte professional with deep expertise in the subject matter as well as the views of an experienced external director or advisor.
In this issue…
This global edition of On the board's agenda looks at how private companies can benefit from having a board, the role of independent board members, the different types of board structures, and the importance of transparency and reporting. Also discussed is how independent board members can help private company owners address one of their greatest challenges: finding a successor.
Private-owned companies with independent board members
Entrepreneurs are typically strong willed people, and for many the thought of having to answer to similarly strong willed independent board members about the decisions they make for their businesses is not particularly appealing. They may also believe the cost, time, and effort required for a board with independent members could be put to better use elsewhere in their businesses.
Despite that, a growing number of privately-owned companies have opted to have boards with independent board members, believing that the perspectives and insights that they can bring to the company far outweigh any constraints. While some companies choose to include independent board members on their board of directors, most appoint them to a board of advisors.
A key benefit of having independent board members is their different and diverse perspectives, as well as their ability to augment the business owner’s own knowledge and expertise with their own different backgrounds and experience.
Private company governance structures
Board of advisors – Advises the CEO and management team. Members of the board may include the owner and members of his/her family, and/or company employees, and/or people who are independent of the company. (The ratio of independent board members to employees to family members will vary depending on the circumstances of the company and the owner’s comfort level in working with independents.) The suggestions and recommendations of the board are provided as advice to the owner and management team and are not binding.
Board of directors – The role and membership of a board of directors are similar to that of a board of advisors, however the decisions of a board of directors are binding.
Family council – A family council normally works in conjunction with the company’s board. The council’s role is to oversee the family interests in the business. It also provides a forum where family matters can be discussed away from non-family members of the board of advisors or board of directors. Members of the council are restricted to the owner’s family, though there may be ex-officio (non-voting) members, such as legal counsel, to advise on specific issues. The protocols of a family council are usually set out in a family charter, which provides a family vision and mission statement and ground rules for council meetings.
“Governance should add value to the organization. Private companies that view the board as an instrument of accountability, growth, and strategy will realize that value. The wealth of knowledge and experiences that independent board members have can enhance the owner’s own skills and capabilities, and their different perspectives may bring owners a range of new ideas and approaches to strengthen the company.”
– Daniel Aguinaga, partner, Corporate Governance and Sustainability, Deloitte Mexico