All businesses can benefit from outside advice. But it can be especially valuable to family businesses, which tend to be more insular. After all, in many cases management is made up of family members who’ve worked in the business for decades, perhaps never having been employed elsewhere. In addition, family dynamics can create conflicts that are tough to settle when all of the players have both a professional and personal stake in the outcome. If these issues sound all too familiar, your family business should consider setting up an advisory board.
Harness the wisdom
An advisory board serves in a consulting capacity and isn’t bound by the fiduciary responsibility to the company and shareholders that a public company board of directors must observe. So an advisory board can feel freer to think creatively to develop solutions to business problems and identify new business opportunities.
Advisory boards also can address differences among family employees on issues such as what direction the company should move, how to expand and diversify the business, succession and retirement planning, and performance management and compensation.
What value can an advisory board bring to your company? Most important, it provides impartial, independent perspective on problems, as well as collaborative solutions to business and family issues. In addition, it can offer professional talent and expertise your company may be lacking and broaden thinking to stimulate fresh ideas and identify new opportunities.
To fully realize this value, you must be open about every aspect of your operations, your business challenges and family dynamics.
If you believe your family business could benefit from an advisory board, you must first define the board’s purpose and goals. Generally, an advisory board focuses on addressing major or strategic issues such as succession planning, compensation, growth and expansion — tackling one or a couple of important matters at a time. But to be more effective, you may want to outline the board’s objectives based on your business’s goals and needs.
You’ll also need to determine the role of leadership. It may be more practical for you to serve as the advisory board’s leader. But as your business grows in size and complexity and demands on your time increase, delegate this responsibility to a board member.
To provide a more complete perspective, you’ll want a mix of professionals from varying fields, demographics and backgrounds. An effective way to recruit advisory board members is to network with business, industry, community, academic and philanthropic organizations. You also may want your professional advisors, such as your accountant, financial advisor or lawyer, to participate because they’re already knowledgeable about your company’s goals, issues and staff.
Specify the mix of traits and qualifications — executive or leadership skills, years of experience, competencies, education, affiliations or achievements — needed in members to fulfill the board’s purpose. But also look for individuals who are willing to be frank with their observations and provide constructive advice while observing confidentiality agreements and maintaining discretion with sensitive business and family issues.
Determine schedule and compensation
How often your board should meet and the degree of formality for conducting meetings and recording minutes depend on the number of members and the board’s purpose and responsibilities. Generally, meeting at least monthly initially will help the group establish and maintain rapport and relevance to the business. Once it has been established for a while, quarterly meetings may be sufficient.
You should cover costs that advisory board members incur in traveling to and from meetings and pay them for their time. Cash compensation makes sense for family businesses that want to remain closely held, while companies that are planning to become listed may want to issue stock.
Make the move
Whether your family business is small or large, you likely will benefit from bringing in trusted business people from outside of the family to serve on an advisory board. They can act as impartial advisors, thus enabling your company to function at a higher level with minimal infighting.
Tax returns, financial statements, IRS communications and similar items are vital to address and process, but they should not be the focal point. Think of these as tasks to get to the real work, which is providing you the information you need and an interchange of ideas to move you forward. The goal is to help you implement your strategies and vision. This is what we do!