SEE ALSO >>> Family Owned Businesses
A family business can produce income and provide economic security for your family. Often several family members are on the management team and the business runs like clockwork. But what happens when issues arise? Many family businesses can’t withstand the pressure of conflicting personal and professional interests. However, the most successful family businesses know the importance of setting up an outside advisory board to help them navigate difficult times — and thrive in the long run.
What does it do?
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, 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 toward and how to expand and diversify the business. They also can handle differences of opinion over performance management and compensation and succession and retirement planning.
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. But to fully realize this value, you must be open about every aspect of your operations, your business challenges and family dynamics.
What’s the plan?
If you believe your family business could benefit from an advisory board, you should 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.
Whom do you want on the team?
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 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.
How should it work?
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 planning to become listed may want to issue stock.
What do you have to lose?
Of course, the core of your family business is family. But a knowledgeable and trusted group of advisors can help ensure your family business stays profitable and sound for many years to come.