Comment & Opinion

JULY 12, 2010 GRAND RAPIDS BUSINESS JOURNAL 13

FAMILY BUSINESS MATTERS Peter G. Roth and Sarah Baumgartner

Examining the importance of independent directors

T
he current economic climate
has created many unexpect-
ed challenges for family-
owned businesses. In light of these
challenges, many companies are
looking for new ways to strengthen
their businesses today in order to
ensure their future viability.
We believe that family-owned
businesses should consider add-
ing an outside director(s) to their
boards as one response to the un-
certain economy. Doing so is likely
to promote progress through the
implementation of new ideas, pro-
vide a layer of legal protection for
business transactions, and protect
the business by minimizing family
conflict.
If properly selected, an outside
director will bring a unique per-
spective to the board.
Family-owned businesses of-
ten have boards made up of fam-
ily members and "insiders" who
largely have similar experiences
and perspectives. An independent
director may have different pro-
fessional, educational or personal
experiences that enable him or her
to view an ongoing challenge dif-
ferently than the rest of the board
and, therefore, provide alternative
solutions or strategies.
It may be particularly benefi-
cial to have a fresh perspective if
other directors have been closely
involved with the business since its
inception. An independent director
will have the ability to suggest that
the way things have always been
done might not be in the best inter-
ests of the business going forward,
and that the business must evolve
in order to survive.
Independence also may allow a
new director to push for changes
that other directors could be reluc-
tant to suggest. Family members on
the board may fear upsetting other
family members, especially older
generations. Employees on the
board may be reluctant to disagree
with family members because their
job is at stake.
An independent director is free
from these limitations.
Even if the outside director's
strategy or plan is ultimately re-
jected by the rest of the board, the
more diverse composition of the
board will create an environment
that encourages creative thinking.
This type of creativity will promote
progress and make a business more
likely to successfully adapt to the
changing economy.
In addition to generating new
ideas, an independent director's
participation in business transac-
tions will provide a measure of le-
gal protection for other members of
the board. A transaction between a
family-owned business and a fam-
ily member is vulnerable to attack
as a "related party transaction" and
even if not legally vulnerable, may
be viewed as "unfair" or "tainted"
if it is not independently approved.
Because an independent direc-
tor can presumably approve deci-
sions without being influenced by
family members, his or her approv-
al likely indicates that the action is
in the best interest of the business,
distinct from family interests. This
arms-length approval will poten-
tially shield the board from liabil-
ity arising from a claim alleging a
breach of fiduciary duties in ap-
proving a "related party transac-
tion" and will help the transaction
to be viewed as legitimate.
Finally, an independent director
can often minimize family conflict.
As noted above, if the independent
director approves a transaction
between the business and a fam-
ily member, this provides more le-
gitimacy to the transaction and will
reduce the risk that other family
members will feel that one family
member is being favored. This is
particularly important where some
family members are involved in the
business and others are not.
In the event of family conflict, a
good independent director will be
of value. While no family expects to
encounter divisions, family-owned
businesses should be prepared for
this possibility. An outside direc- the company should seek to assem-
tor may be able to craft solutions ble a broad and diverse pool of po-
that benefit the long-term viability tential candidates and place a pre-
of the business. He or she may also • mium on candidates with different
be able to preserve family relation- perspectives (e.g., from a difl^erent
ships by serving as an informal industry, different life experiences,
third-party mediator in resolving etc.). You might also consider ap-
family disputes. pointing a third party to assist with
All of the benefits noted above selecting the outside board mem-
assume that you choose the right ber or solicit suggestions from your
independent director, so a compa- current professional advisors.
ny should carefully and thoughtfiil- Finally, it is critical that the
ly select the person it asks to serve outside director be someone who
in this capacity. is willing to speak his or her mind
Most importantly, you should and respectfully challenge manage-
work to ensure that the new out- ment. Even a director with great
side director is truly independent. and unique ideas is of limited value
This type of independence requires if he or she is unwilling to share
that the board member has no per- these ideas openly or is easily in-
sonal or professional relationship timidated by other board members.
with the business or decision mak- Although privately held and
ers inside the company (e.g., offi- family-owned businesses are not
cers, directors and shareholders). legally required to include inde-
Independence, however, should pendent directors on their boards,
not be the only consideration. It is we believe that these businesses
important to recognize that dur- will often benefit from doing so. A
ing the selection process, an owner, family business should at least con-
who is likely also a board member, sider adding an outside director(s)
may have a natural tendency to to its board as part of an effort to
nominate a candidate whose point- provide for the best interests of the
of-view and experiences are similar company.
to his or her own.
While potentially independent, Peter G. Roth is a partner in the
these candidates may not bring the Business Law Group at Varnum
desired diversity of thought or ex- LLP. Sarah Baumgartner is a Juris
perience to the board. Doctor expected 2012 from Univer-
In order to avoid this problem. sity ofMichigan Law School.

SALES MOVES Jeffrey Gitomer

Take notes — and then take action to make it happen

Y
ou're at a seminar. Great in-
formation is being offered
— information that will help
you succeed.
You take in the talk and get your
own ideas — great ideas that you
know you can use and you know
will benefit you and others, ideas
you can turn into money.
You make a mental commit-
ment the moment you write each
note: "Change cold calls to refer-
rals." "Be more creative and daring
when leaving a voicemail." "Sell
value, not price." "Get more video
testimonials."
But then you don't fulfill them
when you get home. Why?
They seemed like great ideas at
the time. You had aha's and epipha-
nies at the event. And you wrote
notes that were golden.
But something happened be-
tween the seminar room and your
first moments back at work.
Answer: You dropped the ball.
The mental ball. The focus ball.
The commitment to yourself ball.
And maybe even the success ball.
What you decided to do imme-
diately after the event determined
your fate.
If you chose wine, beer, liquor,
socialization, partying, TV, or some
other form of time-wasting (self-
destructive) activity, you lost the
opportunity to formalize your in-
formation, expand your thoughts
and cement your self-commitment.
Point of understanding: At any
information event, you cannot take
notes fast enough to capture all the
pertinent infor-
mation. You write
as fast as you can,
Jbut still (without
recording) miss
some thoughts
about ideas and
things that were
important to you
at that moment.
First: The minute the seminar
is over, find a quiet space for 15 to
30 minutes. Open your laptop and
take out your notes. (Maybe next
time take notes on your laptop.) .
Look at every note you took and
spend a moment with each one to
expand the thought. How will you
apply that thought to your sales,
your business and your life? In oth-
er words, take the note and make it
yours. Then determine when the
action will be implemented.
(Note: Meeting planners try to
cram session after session into a
two- or three-day meeting without
providing a chance for attendees to
catch their breath, let alone have
think time.
Big mistake. Every traditional
meeting and breakout should have
a "quiet" session afterward. Refer
to them as "think and apply" ses-
sions — even if they're just for 20
minutes.
Second: Expand your thoughts
while they're fresh in your mind.
Do it again in your hotel room and
on the airplane going home.
Take your notes ftirther: expand
your thoughts. Think more about
the application of each idea and
Free GitBit: I have one more idea,
but no more space. Go to www.
gitomer.com and enter the words
AFTER THE MEETING in the
GitBit box. Jeffrey Gitomer can be
reached at (704) 333-1112 or e-mail
salesman@gitomer.com.
how you intend to put it into ac-
tion.
Third: The minute you get
home, record your notes. When
you are recording, even more ideas
and applications will surface. Burn
them onto a CD and import them
into your iPod or MP3 player. Re-
cord your notes and ideas so you
can listen to them until they be-
come dedicated tasks.
Fourth: Listening to your re-
cording once a day, you will begin
to commit and take achievement
actions. Put at least one new thing
into your work or life every day..
If you have been in sales less
than three years, this process will
reinforce your belief system and
inspire you to greater achievement
(the very thing you hoped for when
you entered the seminar).
If you're a seasoned salesper-
son, this is a huge opportunity to
reinvigorate your desire to achieve
at a higher level and re-dedicate to
personal excellence. It's your re-
commitment to your success.
Reality: Corporations and asso-
ciations spend hundreds of thou-
sands — even millions — of dollars
to impart new and important infor-
mation, and yet when the partici-
pants get home, very little changes.
Reason: Participants are not al-
lotted the time necessary to trans-
fer the notes, thoughts and ideas
into personal actions.
Fifth: Allocate time. During
A double-dip outlook
H CONTINUED FROM PAGE 12
The threat of higher taxes has put
business executives in a pessimis-
tic and cautious mood. For some, it
may take months before they begin
hiring again, ordering new capital
equipment and talking of expand-
ing.
Seventh, is the cost of new
regulation that will hit various in-
dustries, especially financial insti-
tutions. In addition, conformance
to new environmental regulations
plus the uncertainty of the new
health care legislation dampens the
enthusiasm for business expansion.
Eighth, many states have cho-
sen to balance budget shortfalls by
raising business taxes. A significant
increase in business taxes almost
always has an adverse impact on
the economy where the tax is lev-
ied. Adding to this will be the cost
of complying with various new reg-
ulations coming from Washington
and some states.
Ninth, the oil spill cannot be for-
(and after) the meeting, let each
participant make their personal
plan of^ action. This will ensure a
full return on your time invest-
ment, their time investment, your
dollar investment and your human
capital investment.
gotten. Louisiana, Mississippi and
Alabama will feel the direct im-
pact as oil workers are sent to the
unemployment line or other parts
of the world. The tourist trade has
already taken a hit. Now a drilling
moratorium is in place that could
last for several months or longer.
Longer term, the higher cost of
drilling will restrict the industry.
Finally, there is the ever-present
fear of another terrorist attack.
However, with the strong num-
bers now reported, it appears we
may well be able to buck the tide.
All of this confirms the forecast
that the recovery remains on track,
even though the pace may slow in
upcoming months. But recovery is
still recovery, and it sure beats the
alternative.
Brian G. Long, CPM, is director, Sup-
ply Chain Management Research,
Seidman College of Business, Grand
Valley State University.

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