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The Power of an Advisory Board for a Family Owned Business

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Family business owners have special responsibilities. Every day they are called on to act on behalf of their customers, their vendors and their communities. Most importantly, they have a responsibility to themselves and their successor generations.  They want to run an efficient and profitable business today. But they also want to promote their family name and reputation in a manner that will sustain a lasting legacy for tomorrow.  This forward looking dedication is unique to businesses that are family-owned.

A long term vision helps grow the company

This self-imposed sense of stewardship gives the family business a distinctive competitive advantage over traditional corporations.  It is this long term vision that sets these companies apart.  Others may not be as concerned about encouraging and nurturing the commitment of future generations while they instead seek to reward shareholders looking for immediate results.

Advisory board members play a key role

One of the tools that can be useful for growing a strong family business is an outside board of advisors.  The family business advisory board members offer objective perspectives from a range of diverse disciplines while asking probing and insightful questions.  A privately-held, family-owned company is not expected to create an outside advisory board. Nonetheless, if this is something the family opts to embrace, the members should stimulate innovative and intelligent thinking. The participants function in much the same way as their corporate board peers, recognized as an essential component of the company.

In addition, if family members are uncomfortable challenging each other, the advisory board members can take on that role. Often they can pose tough questions while remaining neutral. In this way they function as a key sounding board for the family. Often family advisory boards even assist in the hiring and firing of key employees – including family members. This helps to remove the emotion from important decisions. The advisors can concentrate on what’s best for the business rather than on what’s best for the family. Sibling rivalry, cousins’ jealousy, in-laws resentment, or any negative vibes may be dispelled when impartial observers reach critical conclusions. This is most especially true regarding leadership and success planning.    

The owners are likely to have access to a wide range of ideas driven by colleagues with varied professional experiences when they form a board. Inviting people to participate who are outside of the family and outside of the company adds a new dimension. Their expertise expands and complements that of the business family who are often isolated in their own industry. They expand the company’s competencies when they share their own best practices. Hearing what’s working across the full spectrum of the business community enriches everyone.  

How do you form an advisory board?

If you are wondering why anyone would want to participate in your family’s outside advisory board, you can think about what might be in it for them. Look at the opportunity from their point of view.

The first and most obvious benefit is that they will meet with other experienced, well-regarded business leaders on a regular basis. Whether quarterly or semi-annually, they will have the chance to interact and to learn from each other whenever they convene on your behalf.

A second, perhaps less obvious benefit, is that they will have an influence on your company. It is rewarding to be in a position to help a family business grow and flourish. It is fulfilling to realize that you have had a positive impact on their success. The fact that joining your board is a rewarding experience should not be overlooked by you.

Lastly, your advisors may leverage their role on your board to ultimately join other private or public advisory boards in the future. The experience they gain working with your family can lead to other experiences as well. Each interaction will bring its own set of exciting challenges. 

Do not assume that these advisors are doing your family a favor. Remember, it is a formal business arrangement and it is shaped to be mutually beneficial for all.

What is the next step? 

Your leadership group should adhere to a strategic approach that incorporates realistic advice and objective insights in order for you make smart, educated decisions. When the concept has consensus and genuine support within the family, then ask at last these five key questions at the outset:

1. What are our goals for forming an advisory group?

2. Who will be invited to participate at the board meetings?

3. Will the newly formed advisory board really understand the company’s issues, challenges and emerging opportunities?

4. Can we rely on this group of advisors to be honest, ethical and visionary – while maintaining a high level of confidentiality about our family’s business?

5. How much authority will we give to the advisors? Will they be empowered to make decisions regarding family members’ roles?

As you work through the answers to these questions, you will develop a good sense of your board of advisors’ experience. Encourage them to learn more about your company and industry. This will you give you clarity into what you can expect them to accomplish.

Having valuable advisors

The idea of an outside board is most effective when the family leaders are all in agreement as to its role.  That sounds rather obvious and perhaps overly simplistic. But unfortunately there are times when it appears that everyone is on the same page, only to discover that there are hold-outs. These doubters can eventually sabotage the idea. Be honest with each other and transparent in your concerns. If you want to gain the most from your board, unanimity is a ‘given.’ Be sure consensus is confirmed. If it is not sincere, it will likely fail.