The chairman's role in a family business: a practical guide

Why this matters

Across the chairmanships our partners have held in family-controlled businesses, we have almost always had to reset the role back to what the bylaws actually say. The recurring confusion (across independent chairs, family chairs, and everyone in between) is a blurred line between the chair and the CEO.

The chair does not run the company. Still less does the chair rule it. The CEO runs the company. The chair's role is narrower and, done well, quite specific: to run the board, to be the board's voice toward the family and toward management, and to guard the governance of the board itself. Full stop.

In a listed corporation, the chair is often the voice of a diffuse shareholder base that does not itself speak up. In a family-controlled company, the shareholders are in the room (often as board members themselves), they speak, and often directly to the CEO. The chair's function in that context is to be the shock absorber: ensuring that the board remains the place where governance actually happens, that decisions move forward despite the noise, and that the line between shareholder direction and management execution stays clean.

Chair's mandate definition

• Run the board. Set the agenda, chair the meetings, ensure decisions are properly debated and recorded.
• Be the board's voice. Toward the family, toward the CEO, and toward management.
• Guard board governance. Composition, succession, evaluation, alignment between board members' interests and those of the family, and the integrity of the decision-making process.
• Hold the line with the CEO. Support the CEO publicly; challenge the CEO privately; never substitute for the CEO.
• Set targets, do not deliver them. The board, led by the chair, sets the strategic and financial targets. Delivery is the CEO's job.
• Absorb shareholder pressure. Especially in a family-controlled context, shield the CEO and management from direct shareholder interference, while ensuring the family's voice is heard at board level.
• Compensation: fixed fee only. A flat fee for running the board. No variable component tied to EBITDA. No allocation from the management incentive plan.

Chair role assessment

If you are a family shareholder or adviser wondering whether your chair is correctly positioned, a few diagnostic questions:

• Does the chair issue instructions to management outside the boardroom? (They should not.)
• Is the chair paid a percentage of profits, a bonus, or any management LTIP? (They should not be.)
• When the family wants something done in the company, do they call the chair or the CEO? (It should be the chair, who then engages the board.)
• Does the CEO feel managed by the chair, or supported by the chair? (It should be the latter.)
• Are board agendas set by the chair, or drafted by management and rubber-stamped? (The chair owns the agenda.)
• When a difficult decision arises, does the chair facilitate the board's debate, or does the chair impose a view? (Facilitate.)

If the answer to any of these reveals a blurred line, the role needs to be reset before the next significant decision. Where these lines blur, the board loses its function, and the company eventually pays the cost.

The principle behind the checklist

Like every other board member, the chair is accountable for setting targets, not for delivering them. The CEO is accountable for delivery, and the CEO is paid accordingly. A well-set chair makes the board work. A poorly-set chair makes the board redundant. There is rarely a middle ground.

This article is part of our series on family governance. The reference piece for the series: Governing Families, Not Corporations — the Westwick white paper.

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