KPMG Board Leadership Center Q&A with Jeff Vincent
Jeff Vincent serves as chair of the J. M. Huber Corporation board of directors, which was the recipient of the NACD New Jersey chapter’s 2019 private company board of the year award. In this Q&A with the KPMG Board Leadership Center, Jeff shares his thoughts regarding the unique role played by directors on family company boards.
KPMG’s Board Leadership Center (BLC). According to the Harvard Business Review, family companies perform, on average, significantly better than non-family businesses. “They are stronger financially, have higher stakeholder loyalty, live longer, and are more trusted by the public.” Why do family companies outperform non-family companies?
Jeff. I think they outperform for a couple of reasons. First, a family enterprise can truly focus on a longer time horizon and take those actions that position the business for long term success without having to worry about quarterly earnings reports. A family business can even absorb a one- or two-year earnings hit to reposition the business. So I think that long-term time horizon really does allow a family enterprise to position itself for sustained success. The second reason is that a family enterprise tends to focus on all ofits stakeholders. Certainly family businesses focus on their shareholders, but they also focus on their employees, customers, suppliers, and the communities in which they operate. I think this fosters a much healthier environment and creates a more committed team of employees.
BLC. Of course, family businesses face unique challenges as well. From your perspective both as a lead director and as a CEO of very large family companies, what are the unique challenges—particularly the governance challenges—facing family businesses?
Jeff. One of the biggest challenges family businesses face is preparing for generational transitions— making sure, when it comes to family leadership and family directors, you have a good bench of upcoming talent. You need to manage the transition from one generation to the next, while at the same time maintaining the ongoing stewardship of the business.
BLC. How should relations between the family and the business be structured? What formal structures should be in place to ensure there are separate realms to resolve questions dealing with the business versus those dealing with the family?
Jeff. I think each family organizes itself somewhat differently, depending on that family’s history and how the business has evolved. One size does not fit all, but the key is to have a clear structure and processes around the family / business relationship. You have to be very thoughtful about it. While structure and processes are important, it really comes down to transparency, trust, communication, and the ability to listen.
BLC. How do you build and maintain a strong, effective board for a family corporation? How important are independent directors? What role do they play?
Jeff. Well, again there is not that one board composition profile that is “right,” and it’s going to come down to how the business and family culture has evolved over time, especially for a multi-generational company that’s third generation and beyond. Independent directors add real value as the family business becomes more complex and less dependent on family members running the company. I think independent directors can bring “best practices” to the board, as well as industry expertise and an outside perspective. Also, they can step back from some of the more emotional issues and help the board see things through a different lens. Independent directors don’t have to comprise a majority of the directors. . Family members can be in the majority with a healthy independent director minority.
BLC. Any other advice for directors of family companies—or for those who are considering joining a family company board?
Jeff. There are important differences between being a director on a family company board versus a public company or a private equity-driven company board. One difference that you really have to embrace is that a family enterprise truly has a longer time horizon. And a second difference is that the family business places great value on the intangibles—such as inclusion, diversity, and sustainability—as well as shareholder returns. It’s about finding the right balance.