Our client is a fourth-generation food manufacturing business based in Latin America. The company has over $400 milion in annual turnover and the chairman and CEO is currently a third-generation member of the family that owns the business. She has been running the company for 22 years and has worked in the business for over 30 years. The family has instituted a professional executive team and there are a few fourth- and third-generation family members working in the business in middle management.
The board has a majority of family members but also has four independent board members who did not have pre-existing relationships with the company or the family before they were invited to join the board. The board has developed a set of strict governance procedures that rivals those of many listed companies in the United States. One aspect that was missing was a comprehensive board evaluation process. While the board members were highly compensated, the family felt that they had impressive resumes and titles and would not be open to a formal evaluation process.
The family business board and executive team decided to embark on an aggressive international expansion strategy that included growth through acquisitions, establishing new markets in different countries and a new innovation strategy. The problem was that the board process was designed to be more reactive to information and less proactive. Due to a series of missteps, the initiatives that were implemented by the team began to run into significant difficulties. Due to a lack of transparency with regard to the role of this very expensive board, both the family shareholders and the executive team began questioning its value.
The organization implemented a two-step evaluation process. The first step was a subjective evaluation of the value of each board meeting to identify how the board process could be more focused on the strategic initiatives that were integral to the company’s success. This questionnaire format measured the level of engagement and strategic impact of board meetings and was completed by the board members and executive team members after each meeting. Results were analyzed and recommendations were distributed through the governance committee.
This “real time” analysis was combined with a more comprehensive analysis of the aggregate of all of the board meetings annually. Similar to many companies, specific outcomes and objectives were set for the company and the executive team. The difference was that the board was also tasked with these same metrics and this information was tracked. The role that each independent board member played in supporting the executive team to achieve its goals, and the outcomes, was collected.
Board compensation changed to a “risk adjusted” model that was tied to these outcomes. Board stipends were lowered but upside was provided that was tied directly to the successful completion of the board metrics (strategic initiatives).
This alignment of board focus, outcomes and metrics led to clarity of the value of the board to all of the stakeholders involved. Not only were the goals accomplished, but they were accomplished in a shorter time frame than first envisioned. The board cost more since the compensation increased due to the successes and the risk-adjusted model, but returns were far greater for the company than had previously been achieved.
Ultimately, his led to much greater family harmony especially for the chairman and CEO. Trust between the family shareholders, board members and the executive team increased and the board members were more highly engaged to continue to support the company.