The supervisory board in a family business – Why is it a necessary step?
Benefits for family businesses of establishing a supervisory board
The Association of Independent Supervisory Board Members supports family businesses in making strategic decisions related to ownership oversight and the creation of a professional supervisory board.
Establishing a well-functioning and effective supervisory board is a key milestone in the development of a family business. It enables the company to build long-term value, increase credibility in the market and navigate generational transitions safely.
Independent Supervisory Board Member:
Builds the value of the family business
- Helps break through growth-blocking mechanisms and informal decision-making chains typical of family-run companies
- Supports the identification of real growth barriers and risks, and helps select appropriate development tools—avoiding costly mistakes
- Brings in competencies essential for scaling operations—for example, in mergers and acquisitions (M&A), international expansion, technology implementation, or securing financing
- Introduces proven solutions from other organizations and sectors, adapting them to the specific realities of the family business
Increases Credibility of the Family Business
- Strengthens corporate governance and process transparency, making it easier to collaborate with financial institutions, investors, and other external partners
- Demonstrates the company’s readiness to operate in an organized manner, aligned with best market practices and standards
- Brings an external, objective perspective, which enhances trust in the company – both internally (among employees and family members) and externally (among stakeholders and the broader market)
Provides Support During Transformation and Succession
- Helps plan and implement structural changes that strengthen the company’s resilience and long-term stability
- Facilitates constructive intergenerational dialogue, acting as a neutral advisor and mediator
- Accompanies owners and successors through the process of transferring responsibility, helping to avoid mistakes and reduce tension
- Safeguards the continuity of the company’s values over time, preserving the founder’s vision – even after their departure
Does My Company Need Independent Supervisory Board Members?
As a company grows, the need for professionalizing ownership oversight becomes more apparent. Independent supervisory board members support this process – especially when increasing market challenges require broader perspectives or the introduction of new competencies.
The companies that benefit most from establishing professional supervisory boards are those that, for example, are crossing the threshold of operational maturity and need to organize their structures to better prepare for the next stages of development.
During moments of major strategic challenge, well-designed oversight supports both the company’s management and its owners – strengthening success and mitigating risks.
How Does Having a Supervisory Board Work in Practice?
Best practices for supervisory board operations:
The supervisory board typically meets every 1 to 3 months
A well-functioning board focuses on key strategic areas for the company, including: strategy, competitiveness, operational efficiency, security and risk management, compensation and incentives
Boards may also choose to establish specialized committees from among their members, such as: Audit Committee, Strategy Committee, Nomination and Remuneration Committee
What Are the Possible Models of Cooperation Between a Family Business and a Supervisory Board?
The model of cooperation between a family business and its supervisory board should be tailored to the company’s specific situation.
Involving board members from outside the family or close circle of advisors does not have to mean a major shift, nor does it need to happen all at once. A gradual transition can be considered – for example, by engaging individual experts or starting with an informal advisory board, which allows the company to build toward a more formal and structured collaboration.
What’s essential, however, is to not stop halfway. The process of strengthening the supervisory board’s competencies should continue, based on the company’s evolving needs and the experience gained along the way.
Examples of competencies that an independent member of the supervisory board may bring:
Industry expertise and managerial experience from other successful organizations
Experience in developing and implementing strategy
Knowledge of new technologies and digital transformation
Familiarity with M&A processes, IPOs, company sales, and integration of acquired businesses
Knowledge of fundraising and financing
Understanding of international markets and expansion strategies
Experience in succession planning – psychological and legal aspects
Financial competencies and oversight of controlling and reporting
Legal knowledge and regulatory experience
A well-developed network of business relationships
Advisory voice in the selection process of new management members and in methods of motivation and remuneration – including market and managerial competencies
How to find and select the right candidate for the supervisory board?
Building trust – the key to success
Selecting the right candidate for the supervisory board is a process that goes far beyond analyzing a CV. It is primarily a matter of trust, alignment in collaboration style, and understanding the needs of the owners as well as the organizational culture of the company. Equally important is the ability to cooperate with the management board without encroaching on its responsibilities.
As the owner of one family business put it: “We would like to invite someone to our group who is, above all, trustworthy, who does not share any internal information outside the company, and who acts solely in its interest, not their own.“
Frequently asked questions by family business owners:
Won’t an independent board member learn too many company or family secrets?
Every supervisory board member is legally bound by confidentiality obligations under applicable law. These rules are especially strict regarding trade secrets – i.e., information with direct business value. These obligations apply both during and after the term of service and are indefinite. Breaching them may result in civil liability or even criminal penalties (up to 2 years of imprisonment).
This means that no board member may disclose any information learned in connection with their role if the company considers it confidential.
Appointing an independent board member does not introduce additional risk in this area.
Moreover, a well-managed selection process should involve only individuals with high reputations and ethical standards.
Are we giving up partial control of the company to an outsider?
No. Every board member is expected to act in the interest of the owners. Furthermore, neither individual members nor the board as a whole manage the company’s operations. They do not have the authority to interfere in day-to-day activities. In fact, the law prohibits the board from issuing binding instructions to management regarding company operations.
As the name suggests, the supervisory board oversees the company’s activities and serves as an internal advisor to management.
Shareholders may choose to grant the board additional powers – such as requiring board approval for certain management actions – but this is entirely at the owners’ discretion.
Doesn’t an independent board member just add bureaucracy and burden the family board?
They shouldn’t. Legal mechanisms exist to allow the company to benefit from the independent member’s expertise without overburdening other board members – especially if those are busy family members.
For example, the board may delegate specific supervisory tasks to the independent member, allowing them to support management on an ongoing basis with strategic initiatives, transactions, or international expansion.
What if I can’t get along with the independent board member?
Any board member can be removed at any time by a majority of shareholders. Additionally, the company’s articles of association may grant founders personal rights to appoint or remove specific board members by written declaration.
A board member serves only as long as they retain the owners’ trust. There is no legal risk of someone becoming “entrenched” in the company structure.
A well-managed selection process should significantly reduce the risk of incompatibility.
Isn’t appointing an independent board member too expensive for the value they bring?
Board members should be compensated. The amount and form of compensation are subject to mutual agreement.
The compensation should reflect the expected level of engagement and outcomes, and ensure the member’s impartiality in relation to management.
Board members should also be reimbursed for expenses related to their duties – such as travel, accommodation, or other costs directly tied to their work for the company.
Family Foundation and Family Business: How to Build Effective Corporate Governance?
We are often asked how best to structure the bodies of a family foundation and a family business to ensure effective management and protection of the interests of the founder and beneficiaries, and what role the supervisory board should play in this regard.
Relationships between the Family Business and the Family Foundation
The family foundation is usually the sole (or majority) shareholder of the family business (e.g., a limited liability company or joint-stock company).
The foundation’s management board represents its interests at the shareholders’ meeting (general meeting) of the family business, which includes making strategic decisions.
The foundation’s statute may require the management board to obtain approval from other foundation bodies (e.g., the supervisory board) for key matters concerning the family business.
Bodies of the Family Foundation and the Role of the Supervisory Board
Management Board
The executive body responsible for managing the foundation and representing it.
Its decision-making powers regarding the family business may be limited if specified in the foundation’s statute.
Assembly of Beneficiaries
Does not serve an ownership role (like shareholders in a company), but adopts important resolutions, e.g., approving reports or profit distribution.
The competencies of this body can be significantly expanded (e.g., to include the selection of supervisory board members).
Supervisory Board
A supervisory and control body that ensures the proper functioning of the management board and alignment of decisions with the interests of the foundation and its beneficiaries.
Legally required when the number of beneficiaries exceeds 25.
May serve an advisory role, although it cannot take over the day-to-day responsibilities of the management board.
The foundation’s statute allows for the expansion (or slight limitation) of its powers, enabling the foundation’s structure to be “tailor-made.”
A well-organized corporate governance structure in a family foundation and family business ensures transparent decision-making processes, management stability, and the protection of the long-term interests of all involved parties.