Monthly Archives: October 2014

Why have a family advisory board?

“OOUTSIDERS or advisors with a commitment to the company can add perspective, problem-solving ability, expertise, strategic thinking and a network of contacts that complement those of an able owner manager and his top management team.”

IT’S lonely at the top!

The composition of the advisory board complements the knowledge and skill set of the owners. Good advisory boards will have at least one member with strong financial skills, one with good content or industry knowledge, and others with strong business backgrounds. However, board composition can change over time, depending on a number of factors. A new business may need board members with more “startup” and financing knowledge than a more mature business. When ramping up a rapidly growing business, human resources expertise may be essential. A new generation of owners in the business may want broad managerial and business advice/counselling.

The advisor also assists in planning for the future by providing help with objective financial analysis, its review, and its implications, advise on strategy related to product/service development and help the owner managers establish and review goals.

In my work calendar, mentorship of the next generation leaders forms part of my engagement.

The next challenge is finding the right advisor

It is important that owners know what they are getting when they make the offer to an advisor. A good place to start is with a core of business associates; people whom you have personally seen in action. Don’t dismiss the element of trust. In the family dynamic, the advisory board is all about trust. You want someone who can also guide your children. This means picking talent whom you trust, “not just golfing buddies.” Lack of trust will hamper a board.

Full disclosure of information and open honest dialogue are hallmarks of successful advisory boards. Failure to share key financial information essential to the board’s function will result in advice that is, at best, based on a superficial understanding of the business and, at worst, will put the business at risk.

Business owners surrounded by relatives, long-time employees can easily develop a myopic view of the business and the outside world

A good advisory board puts new points of view in front of ownership and challenges the sacred cows (old and loyal employees/relatives) that can block progress. A professional family business consultant can be a tremendous asset; he or she can help establish the family council and advisory board as well as serve as facilitator to these two groups. The consultant is a neutral party who can stabilize the emotional forces within the family and bring the expertise of working with numerous families across many industries.

Compensation plays a part in setting a tone of formality and professionalism. Board compensation should be commensurate with the resources of the business and should be sufficient to send a message of seriousness.

Define terms and term limits

Many advisory boards are set up based on a verbal request from the owners to a prospective member. These are often open-ended requests. This can cause problems, especially if a board member is a long-time friend or associate and the owners are a bit uneasy about dealing with conflict.

Map out your expectation

FROM the outset, establish specific terms of office, and make your expectations clear.

Advisory board roles should also have term limits, such as 12 or 24 months. It can be awkward and potentially damaging to your business’ reputation to kick out an advisor if he or she is not performing. Setting term limits allows the transition to happen naturally.

Successful boards have formal meeting agendas, published minutes and generally follow accepted rules of order. The best boards have their practices documented in written bylaws. Agenda are prepared and published well in advance of the meeting, and are part of significant pre-meeting preparation by the owners.

Depending on the goals of the family business, meetings can be monthly or quarterly.

In my case, I travel almost every week as my advisory role covers Asean countries. As I write this column, I am now in California to facilitate a family business strategic planning session with family business owners.

Maintain a professional edge.

Remember that your advisors are neither employees nor suppliers and they should not be treated as such. Advisors should in no way be held accountable for the decisions of the company nor for any fallout those decisions trigger. They are there to make suggestions and observations based on the quality information with which you provide them. It is up to you as the owner to make the decisions and to implement the plans.


Soriano: Family business advisory board: stabilizing force

STUDIES have shown that firms in which founding family ownership remained performed significantly worse than nonfamily or management-controlled firms. The findings of this research follow earlier findings that seemed to point to effective governance requiring active, caring oversight in addition to independence.

“If there were only one ‘success strategy’ I could recommend to a family business, creating an advisory board would be that strategy. In times of crisis, the advisory board can act as a safety net for both the family and the family business,” said top family business expert Don Schwerzler, founder of the Family Business Institute.

A successful Family Business Advisory Board, sometimes also referred to as a board of advisors, consists of an objective and experienced business person or people who are not family and/or managers of the business. It is a small group of people who meet periodically during the course of a year to offer advice to a company. Members of a board of advisors do not usually have a share in the company, and unlike a board of directors they do not bear legal responsibilities for the company. Generally, small and family-owned businesses use a board of advisors to get outside advice from someone that does not have any immediate involvement in running the organization.

An experienced board can help relieve tensions and resolve problems such as the following:
• Continuing disagreements between family members
• Broken communication between generations
• Narrow way of viewing things
• Emotionally charged decision making
• Problems are attacked without objective perspectives
• Distorted assessments of each other’s talents
• Loss of commitment to the family and/or business
• Questioned motives
• Analysis paralysis

However, a family business need not experience problems to benefit from a board of advisors. According to Richard Randal, there are lots of opportunities that an advisory group can help the business capitalize on:

• to bring additional depth and breadth to planning for the future

• to provide specific assistance in assuring the continued success of company operations

• to aid in the selection and development of the next generation of owners and leaders

• to help expand and diversify the business

• to counsel regarding succession and retirement plans

The requirements for success are not complex and the benefits can be great. Generally, the first hurdle is the decision to bring in outside advisors, to share sensitive information and to listen to possibly uncomfortable input in front of a group of people. Once that hurdle is cleared, the road to success with advisory boards is well-marked and well-travelled. Owners who go down that road will find a new source of energy, ideas and experience open to them.

How does an advisory board operate?

An advisory board is not governed by legal statute, so it can operate pretty much however you want it to. Think of it as being like an organized group of consultants.

As such, you and your Board members have lots of scope to define how you will operate.

But, like any relationship, if it is to function effectively, there should be some planning and guidelines. Here are several suggestions and thoughts for your consideration.

Duties. They will be exactly what you want them to be. Always incorporate the board member’s functions into a job description, for the same reason that all your employees should have a job description. It might even be appropriate for particular member’s descriptions to vary somewhat according to the expertise they are bringing to the board. Every member of the board should be intimately familiar with your business plan. Their job description should include a requirement that they reference their advice within the context of the business plan.

Leadership. In the early stages, and with smaller family businesses, the CEO will probably provide leadership and direction as to what is required from the advisory board. However, over time and with increasing size, there is merit to allowing a board to develop its own leader. A larger board will have a certain amount of internal interaction and dynamics and in some circumstances might need to perform some of its functions somewhat separate from management. Your family business’ needs will dictate how this develops.

Size. Whatever you need to get the job done. Size and composition of your board can, and probably should, change over time with your changing circumstances.

Authority. Unlike directors, no authority is needed to carry out statutory requirements. So an advisor needs only the amount of authority that is consistent with his / her duties. Planning their tasks and job description should identify whatever authority is needed.

(To be continued)

(Professor Soriano will be sharing his experience in a family business forum today, Oct. 21, entitled Wealth Shall Not Pass Three Generations at the Holiday Inn Hotel (Glorietta) Ayala Center. For please visit or contact Allen at 09228603186 for details. Slots are limited.)

Values, philanthropy: Cornerstones to lasting family business

“I choose to rise up out of that storm and see that in moments of desperation, fear, and helplessness, each of us can be a rainbow of hope, doing what we can to extend ourselves in kindness and grace to one another. And I know for sure that there is no them – there’s only us.”
– Oprah Winfrey

Philanthropy in family businesses

Philanthropy attempts to solve problems at their root causes (the difference between giving a hungry man a fish, and teaching him how to fish for himself). A person who practices philanthropy is called a philanthropist.

According to a PWC article, for many family businesses, a culture of values and responsible ownership comes naturally and giving back yields substantial dividends, both inside and outside the business. Not only can it be a positive extension of your family’s values into the world, family philanthropy can also be an excellent way to teach the next generation about financial stewardship and the good that wealth can accomplish.

Shared values: The glue that connects the family and business

For a family business, values connect every touch point in the life of the family enterprise. It is the source of the family business success, the enduring commitment to the family and the stakeholders, and to the founding generation. Clearly, it is the source of their legacy.

Shared values provide power to a business and acts as guideposts and alignment thereby assuring cohesion. It is also a powerful enabler in resolving conflicts – through the natural act of passing on the beacon to the next generation.

In my work as family business coach, a significant part of my sessions delves on helping family businesses identify and analyze family and business values and exhorting family members to “walk their talk.” The session then proceeds to connecting each value to the roles of every family member in embracing a wide range of values-centered activities. One of these activities is the creation of the family business’ philanthropic goals, leading to thoughtful and productive charitable giving.

Commitment to philanthropy

Family businesses are likely to be committed to philanthropy as the motivation to share their wealth and even personal capabilities (e.g. voluntary work) could be a result of wanting to train and shape the mindsets of the younger generations to know how to handle their wealth and not take it for granted. Through sharing and initiating projects that empower less fortunate people, the members of the family business would be able to discover that there is more to life other than being too busy counting their money or being too complacent and insensitive to other people.

The wealth they have could be put in investments that not just only multiply profits, but more importantly imbue a shared value between beneficiaries in the community and the members of the family business making a huge impact that will forever be remembered in the hearts of everyone engaged. To quote fellow family business coach Betsy Grill, “the families I work with often find that philanthropy is an excellent way to teach the next generation about financial stewardship in the context of giving back. It also offers children a tangible project in which they can be actively involved, particularly if they are too young to participate in the family business or in other wealth planning activities.”

The experience of participating in philanthropy becomes not only a one-way channel, but also a mutual encounter. It is an opportunity for the next successor and other members of the family who would soon be the family enterprise’s key players to live proactive and meaningful lives that are not centered only to the business and themselves, but thrive and find joy and fulfillment over generosity without egotistical motives.

The unifying factor: Going beyond differences

In service to humanity and for the good of the world, the members of the family business (both family and non-family employees) would have a common ground to come together and be united. Philanthropic efforts are such beautiful opportunities to forget about personal differences and create a culture of teamwork and generosity.

This is why we see companies stressing how their workers are involving themselves in volunteer work and in gathering all kinds of donations for the needy.

Soriano: Make philanthropy your legacy-building family affair

“WEALTH is not to feed our egos, but to feed the hungry and to help people help themselves.” – Andrew Carnegie

ACCORDING to Wikipedia, philanthropy etymologically means “love of humanity” in the sense of caring, nourishing, developing and enhancing “what it is to be human” on both the benefactors’ (by identifying and exercising their values in giving and volunteering) and beneficiaries’ (by benefiting) parts.

The most conventional modern definition is “private initiatives, for public good, focusing on quality of life.” This combines the social scientific aspect developed in the 20th century with the original humanistic tradition, and serves to contrast philanthropy with business (private initiatives for private good, focusing on material prosperity) and government (public initiatives for public good, focusing on law and order).

Philanthropy is transformative and based on family values.

Family businesses practice philanthropy for reasons based on values and wise business strategies. It is an extension of the family enterprise that reaches out and tries to respond to the depressing issues in the community and on a larger scale, to the world — giving opportunities for the underprivileged to gain better access to resources and develop as productive individuals.

It is through philanthropy that we see how family businesses selflessly contribute to help change lives in different ways – scholarship grants, livelihood trainings, housing projects, medical support, feeding programs, benefit concerts and other sorts of fundraising events. Recently, we have witnessed the amount of support (monetary and/or in kind) from many companies including family businesses that poured to help
the people of Leyte and neighboring provinces devastated by super typhoon “Yolanda.”

The act of philanthropy is truly powerful and transformative.

Philanthropy anchored in family business objectives, shaping the vision and mission.

Every year, tons of requests or applications for grants, sponsorship or donations are received by family businesses. Once the news spreads that a particular company is active in philanthropy, more and more people and groups from various backgrounds and
causes (non-government organizations, for example) would vie to seek for support.

There are a lot of them out there, and many are really good with what they do! If all are deserving of support, it would not be a question of whether or not you are giving the support to the right individuals or groups anymore, rather a question of which ones resonate with what the family business is focusing on.

The problem is that as much as any family business would like to spread its resources, it may not be sustainable. So, it is really important that the philanthropic efforts of the family business be based on certain objectives. What are the demographics which the family enterprise has to focus on?

In this way, the portfolio for this purpose would be developed strategically. Always go back to how the family business sees itself attaining both in the short and long term. Which causes are really close to the hearts of the members of the family? Do these causes relate to the vision and mission of the company? The family business can concentrate on particular areas — environmental protection, education, health, etc.

Figuring out which beneficiaries from a long line of hopefuls is truly a difficult
task and may be disheartening for the applicants, but of course, when you are in a budget like how it is always in business, you need to consider what the family business prioritizes to support, so that the philanthropic efforts would attain depth and not scattered and all over the place. A little here and a little there, could be interpreted as lacking real commitment. Select which serves the objectives, vision and mission of the family business, stick with it and make real impact through flagship projects.

Family businesses need to have a structure for philanthropic purposes.

The family business would benefit from developing a systematized structure especially when it comes to decision-making. Identify who among the members of the family (including non-family members if there are) are going to be responsible with particular projects and discuss how processes for granting donations or monetary support will be made. If you think anyone could just decide in the family in terms of releasing finances or other material support, it would be difficult to trace the development of projects and the expenses made. Better establish structure and rules.
(To be continued)