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.

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