A founder built a company and owned every share of it. He ran it well, and he ran it alone. Then one day his airplane went down, and he was gone. His two sons were not in the business. Each inherited...
A founder built a company and owned every share of it. He ran it well, and he ran it alone. Then one day his airplane went down, and he was gone. His two sons were not in the business. Each inherited half the shares, both wanted to be the next CEO, and their interests, in the delicate phrasing of the consultants who tell the story, were different. Companies die in exactly this spot. This one lived, for one reason: the founder had put a board of nonexecutive directors in place while he was alive, and those outsiders stepped in, managed the succession, and eventually helped the two brothers form an executive team together. Years later, when the brothers deadlock on a decision, it is still the nonexecutives who listen, mediate, and advise.
The story is one of three composite cases that open the board chapter of Governance in Family Enterprises: Maximising Economic and Emotional Success (Palgrave Macmillan, 2014), by Alexander Koeberle-Schmid, Denise Kenyon-Rouvinez, and Ernesto Poza, three advisers who have spent their careers inside large family firms in Germany, Switzerland, India, and the Americas. Their book is not a book of stories. It is a book of machinery: checklists, evaluation grids, term limits, meeting calendars. And for all its diversity of cases, it allows itself exactly one rule that it claims holds everywhere. Family enterprises are so different from one another, the authors write, that "there are no recommendations that apply to all equally." Then comes the exception: "There, however, is one recommendation that applies as a general principle: the need for appropriate checks and balances, with the CEO position and the chairman position separate."
One rule, out of an entire book of them, promoted to universal. Whoever runs the business day to day must not also chair the body that watches the business. And the authors sharpen it further: "if the CEO is a family member, the chairman should be a nonfamily member, and vice versa."
This essay makes the case that adopting this single rule, at whatever scale your family operates, is the highest-leverage governance decision you can make, and then walks through the book's four-step method for building the structure that makes the rule real.
Start with why the rule earns its special status. In most family businesses, especially first-generation ones, one person holds three jobs at once without ever naming them. They manage the business: the daily decisions, the hiring, the pricing, the supplier calls. They oversee the business: the standing back, the asking whether this year's decisions were good ones, the judging of the manager's performance. And they own the business: the ultimate right to decide what it is all for. When all three jobs live in one chest, the oversight job simply stops being done. Not because the founder is dishonest, but because no human being can honestly grade their own work, week after week, with money and pride on the line. The exam is being marked by the person who sat it.
Trust is the reason families give for leaving it this way, and trust is precisely what the arrangement quietly spends down. When the founder's judgment is never checked, every mistake compounds in the dark until it is too large to hide, and the family discovers the problem at the worst possible moment, usually at a funeral or in a courtroom. The two brothers in the plane-crash story were saved not by trusting each other more, but by the existence of people whose job was to stand outside both of them.
The book's other two composite cases show how the same rule flexes with circumstance. In one, a large family with fifty members decided no family member may work in the company at all: the CEO is a nonfamily professional, and the chairman is a family member, holding real power over strategy, budgets, and every senior appointment on the owners' behalf. In the other, a family member is CEO among nine cousins, so the chairman is deliberately a nonfamily executive who runs another company, chosen exactly because a family chairman would have multiplied "the risk of conflict owing to family tension." Notice the symmetry. The rule is not "family out" or "family in." It is: the two seats at the top must never be the same kind of seat, so that whoever holds one is genuinely answerable to the other.
Most families who accept the argument then make the same mistake: they start naming names. Uncle Robert is wise. My old boss is shrewd. The pastor is neutral. The book insists on the opposite order, and offers a four-step model for it. First define the benefits you want from a board, and just as important, what it should not do. Second, define its tasks; the book names five: monitoring, advice, personnel selection, networking, and communication with the family. Third, set what the authors call the contingent factors: the board's size, terms, competence requirements, instruments, and pay. Only then, fourth, recruit and later evaluate. Think about the seats, in other words, before you think about the people, because a seat designed around a person collapses the day that person leaves or disappoints.
The book's recommended settings are concrete enough to copy. Three members is the working minimum, one executive and two nonexecutives; seven to nine is the ceiling; and the nonexecutives, the people not employed in the business, should always be in the majority. Terms should run three years and roll, so one seat comes up for renewal each year and expertise never walks out all at once. Accumulated tenure should be capped, twelve years being a sensible maximum, with an age limit of around seventy to seventy-five, applied to family and nonfamily alike, because a watcher who has held the seat for twenty years has usually stopped watching. The board should meet at least four times a year, with the four meetings anchored to four subjects: outlook, financial statements, strategy, and budget.
There is also a short list of people the book says should never hold these seats, and it will sting, because it is exactly the list most families reach for first: your accountant, your tax adviser, your banker, your lawyer, your friends, and your business partners. Every one of them earns money from you or owes warmth to you, and either debt bends their judgment. The seat exists to hold someone who can afford to tell you no.
On pay, the book reports German figures from its era: small family firms paying nonexecutive directors roughly four thousand euros a year, the largest paying around forty thousand, the chairman earning fifty to one hundred percent more. Treat those numbers as one country's snapshot from around 2014, not a benchmark for your family. The principle underneath is the portable part, and the authors state it plainly: "pay the nonexecutive board members well, and expect a lot." A watcher who serves for free is a watcher you cannot make demands of.
Here we must be honest about the book's blind spot, because it is the blind spot of nearly the whole governance literature. Its named cases are enormous: Würth with sixty-five thousand employees, Haniel with fifty-six thousand, conglomerates with advisory boards, audit committees, and staffed family offices. The book has almost nothing to say to the family running a hardware shop in Kampala, a poultry farm outside Kumasi, a private school in Jinja, or a five-vehicle transport business in Nairobi, which is the size of enterprise most families actually govern. The book stops there. We go one step further, because the principle scales down cleanly even where the machinery does not.
At the size of a shop or a farm, a board is three people who sit with you four times a year and have permission to question you. One might be a retired businessperson from your church who has run something bigger than yours. One might be a professional, a teacher of accounting, a manager at a company in town, someone numerate and unafraid. One might be a family elder who holds no job in the business and takes no money from it. None of them should be your supplier, your debtor, or your drinking companion. You show them the real numbers two weeks before each sitting, the way the book prescribes comprehensive reporting in advance, and for one afternoon each quarter you are not the owner explaining; you are the manager answering. The chairman of those afternoons, the person who sets the agenda and asks whether you did what you said last quarter, is not you. That is the whole rule, purchased for the price of four lunches a year.
And the rule bites hardest exactly where small family businesses bleed: the son given a branch he was not ready for, the sister-in-law on the payroll no one dares question, the expansion funded by a loan nobody stress-tested. A founder can dodge his own doubts indefinitely. He cannot easily dodge three respected people, sitting together, asking the same question twice.
The four-step model ends with a step families skip even after doing everything else right: evaluation. A board that is never assessed drifts into ceremony, and a ceremonial board is worse than none, because it lets everyone believe oversight is happening. The book's best working example is Bettina Würth, chairwoman of the advisory board of the Würth Group, the German fastenings giant her father founded in 1945. Her board is deliberately modeled on that of a publicly listed company though the firm is private. Its audit committee has three members: an auditor, a lawyer experienced in finance, and Bettina Würth herself. And every other year, the board's own effectiveness is assessed by a neutral outsider, someone who is not a member, using a questionnaire and a full evaluation session. The results are not filed away. One round of assessment, she reports, changed how reports were edited, changed committee composition, and surfaced that members wanted deeper involvement in strategy and risk. The watchers asked to be watched, and got better.
Scaled to a kitchen-table board, this is one evening a year where the family and the three advisers ask each other, with a neutral person moderating if the conversation needs it: did these sittings change any decision this year? Did we see the real numbers in time? What should we stop discussing, and what did we never dare raise? Ten honest minutes of that is worth more than a constitution nobody rereads.
There is one more reason to build the seat now rather than later, and it looks past the founder entirely. Once a board exists, it becomes the natural home for the hardest task in any family firm: developing and honestly judging the next generation. The book devotes a whole chapter to staged competence plans for successor CEOs, and its quiet precondition is that somebody other than a proud parent is doing the assessing. A chairman who is not the CEO, backed by nonexecutives who owe the family nothing, is the only structure in which a family candidate ever hears the truth about their own readiness. Build the watching seat for yourself, and you will find you have built the judging seat your children will need.
Here is the move to make this quarter, and it costs a phone call, not a lawyer. Separate the two jobs at the top of whatever your family runs. If you manage the business, you do not chair the meetings that review the business. Name three people who take no money from you and owe you no comfort, invite them to sit four times a year, and send them the true numbers two weeks ahead. Give the chair to one of them, on a fixed term, three years, renewable, with an understanding that the seat outlives any single occupant. Then put one evening on next year's calendar to ask whether the arrangement changed anything, and let the answer be heard.
Record all of it where the family can see it. The Family Council module in LegacyPot is built for exactly this: the names, the terms, the meeting dates, the decisions and the follow-ups, kept where the next generation can trace how the family learned to watch itself. A family that writes down who watches whom has answered, in advance, the question that destroys families who never asked it.
The founder in the airplane story did not know which flight would be his last. He knew something better: that the business should never depend on his being on the next one. The chairman is not the CEO. Make that one sentence true in your family, and half the book's remaining machinery becomes easy. Leave it false, and none of the rest will save you.