Eric Becker has served on several boards, including that of Cresset, a Chicago-based private wealth management and family office firm that he co-founded and chairs. His board experience ranges from companies such as the Chesapeake Spice Co. to nonprofit organizations such as the Positive Coaching Alliance. Becker, who is also the author of the Board of Directors Best Practices Guide, shares what family offices interested in forming boards should be thinking about.
What are the most important functions of a board of directors for a family office?
Among the many responsibilities of a board, the key functions include management oversight, succession planning and making sure there is an audit, compensation and investment committee and structure.
What questions should family office members ask if they’re wondering whether they should start a board?
Family offices have essentially three choices: no board, an advisory board or a fiduciary board. No board is not necessarily a bad thing, but the family needs to be OK with not having that diversity of opinions and guidance. Advisory boards are great in that the board members are not taking on any liability; they are just giving advice. I’m a huge fan of advisory boards. A fiduciary board is like a corporate board in that it will focus on how strong the leadership team is, help to guide succession planning and step in if something were to happen to the family office founder or leader. That said, advisory boards are the most common type of board and are relatively easy to implement.
What are some options for structuring a board of directors?
First, if it’s your business, be honest with yourself as to whether you want to maintain control of the board. If so, that requires a certain number of board seats to retain that control. Also, determine how many board seats you want allocated to independent board members. I believe independent board members bring tremendous value to a board, as they are driven only by what’s best for the organization, without conflicts of interest. Plus, they often bring unique areas of expertise, such as a deep background in technology or digital transformation, for example.
I like to use a matrix of the different talents and experiences I need on a board and match existing and prospective directors with that matrix to identify any gaps or opportunities.
What about figuring out board composition?
I’m a fan of smaller boards, from five to seven people, which provide an appropriate diversity of opinions but allow everyone to still have a voice. If the goal is to grow the family office for future generations, an advisory board or a fiduciary board likely makes the most sense. Having an odd number of directors is preferred in order to avoid being stuck with any potential tied votes.
You’ve talked in your Board of Directors Best Practices Guide about constructive tension at board meetings. Can you elaborate?
Constructive tension is all about providing just the right amount of support for an organization’s leadership team while also appropriately challenging them. When you don’t do it right, bad things can happen. If a board member is not sufficiently challenging, you are likely not adding value to the organization’s decision-making engine. If you are overly challenging, you are likely creating too much stress and anxiety for the organization’s leadership and could end up killing really good ideas. So constructive tension is a fine line that board members need to be able to walk.
What should board members do if they ever find themselves at an impasse?
When a board hits an impasse, one of the worst things that can transpire is for prolonged arguments to be allowed or for one board member to dominate the conversation. In that instance, the board should take a pause and find someone else on the board or in the organization to take the time to find the right group of people to analyze the problem and provide a recommended solution.
What are some signs of a high-functioning board?
A high-functioning board exhibits a high degree of collegiality and accountability among members. It should have defined operating processes and a “board wheel” that has a schedule of activities and events that happen every year, such as budgeting, compensation alignment, discussions on risk, etc. High-functioning boards are also very communicative with a strong culture that supports and encourages directors to make a difference and appreciates what everyone brings to the table in terms of experience and leadership.