From Harvard Business Review · · 3m
Building a Board That Fits
How to design boards that counterbalance ownership structures and evolve with companies.
In brief
How to design boards that counterbalance ownership structures and evolve with companies. Good boards balance founder control, strategic oversight, and long-term value by adapting to ownership structures. Originally reported by Harvard Business Review.
The Problem
Most boards are designed around founders, CEOs, or controlling shareholders and gradually become misaligned with the organization’s changing needs.
The Solution
Design boards to counterbalance specific risks created by the company’s ownership structure and context using purpose, people, process, and the chair.
The Benefit
Boards become more independent, strategically valuable, and better equipped to challenge management, adapt over time, and improve long-term governance and performance.
Ownership Contexts
Most firms fall into one of four ownership categories: entrepreneurial ventures, family firms, large public firms, and private-equity-owned firms.
Entrepreneurial Ventures
Entrepreneurial ventures have concentrated decision-making, long-term ownership mindset, and conviction but often suffer from unchecked risk appetite and narrow strategic perspective.
WeWork IPO Example
WeWork’s 2019 IPO collapsed because its board didn’t challenge cofounder Adam Neumann, who held super-voting shares and was his own board chair.
Family Firms
Family firms face governance challenges including blurred roles between family members, shareholders, and management, and sibling rivalries.
Family Governance
Family boards must set boundaries to separate family governance from enterprise governance and ensure unified shareholder representation.
Public Firms
Large public firms face governance environments with dispersed ownership, intense regulatory scrutiny, and quarterly performance pressure.
Private-Equity Firms
Private-equity-owned firms engineer governance to provide disciplined oversight within a specific investment horizon with performance-focused metrics.
The Need to Evolve
Many good boards lose their ability to serve as effective counterbalances over time due to resistance to change.
Kodak Case Study
Eastman Kodak’s board was designed for film manufacturing but failed to adapt to digital photography, leading to its decline.
Kodak’s Structural Flaws
Kodak’s board had a persistent chairman and CEO role combination and a slow board turnover rate that hindered adaptation.
Purpose
Purpose defines why the board exists and whom it owes its duty to, such as ensuring long-term sustainable development for shareholders.
Wright Technologies
Wright Technologies’ board defined purpose as 'ensuring long-term sustainable development of the company and value creation for the shareholder.'
Empire Group
Empire Group’s board defined purpose as protecting executives from family interference and setting long-term business vision.
Xama IPO
Xama’s board defined purpose as 'supporting the executive team through the transition and establishing governance practices without disrupting operations.'
GeoTech
GeoTech’s board focused on exit timing and returns for the PE fund rather than long-term enterprise value.
People
The board must select members with specific skills to counterbalance the company’s ownership structure.
Wright Technologies Board
Wright Technologies recruited an independent chair and a director with customer experience to counterbalance the founder.
What to remember
Good boards balance founder control, strategic oversight, and long-term value by adapting to ownership structures.
