Family businesses keep outsiders off boards for privacy reasons: Report

A high proportion of family companies actively prevent non-family members joining their boards because they are concerned about privacy, research from RMIT and accounting firm MGI has found.

The survey of 5,000 family businesses, conducted by RMIT, reveals just 42% actually have a board of directors.

Of those companies that do have a board, a staggering 85% have no non-family board members. More than half of these companies (53%) said the key reason for not having board members from outside the family was concerns about privacy.

MGI Australia chairman Sue Prestney says it’s a high price to pay for privacy.

“Family businesses are very private because families are very private. But having an independent person on the board and making the board more objective really helps when it comes to decisions regarding family matters.”

She gives the example of deciding whether a family member should be allowed to join the business as an employee or whether a family member needs to be sacked.

“Those sorts of decisions are really difficult when they are left to mum and dad.”

Prestney says it is “disappointing but not surprising” that almost 60% of family businesses do not have a board and also expresses concerns about the governance practices of those boards that do exist.

For example, the majority of family business boards (46%) have just two members.

“Having a formal board makes you have a formal agenda. A lot of the boards that are there just look at operational things. They might look at last month’s figures and talk about how well Mary in accounts is doing, rather than looking at risk management, governance and strategy.”

However, she does question whether some potential board members are being scared off joining a board by what she describes as “onerous” requirements for board members.

“There is an element of fear for people. It’s a double-edged sword. We understand why there needs to be protection for stakeholders and the public, but if it’s pushing people not to have boards then it’s not the outcome the public necessarily wants.”

One positive out of the survey is the frequency with which family businesses meet – the majority (46%) indicate they meet once a month.

Prestney says this is ideal for a small business, as it allows the board to review monthly accounts and ensure that strategic plans remain on track.

“Things can get away from you in a month, so you must look at monthly accounts and that’s best done in a formal setting.”