How Family-owned Businesses Can Benefit from an Advisory Board

All businesses can benefit from outside advice. It can be especially valuable to family-owned businesses, which tend to be more insular. In many cases, management is made up of family members who’ve worked in the business for decades. In addition, family dynamics can create conflicts that are difficult to resolve when all of the players have both a professional and personal investment in the outcome. Here are some of the reasons your family-owned business should consider setting up an advisory board.

Harness the Wisdom

An advisory board serves in a consulting capacity and is not bound by the fiduciary responsibility of a public company board of directors. An advisory board can think more creatively to develop solutions to challenges facing your business and identify new business opportunities.

Advisory boards can address differences among family employees on issues such as company direction, how to expand and diversify the business, succession and retirement planning, and performance management and compensation.

Most importantly, an advisory board can provide an impartial, independent perspective on challenges facing your business, as well as offer collaborative solutions to business and family issues. In addition, it can inject a professional flair and expertise your company may be lacking.

To fully realize the value of an advisory board, you must be open-minded about every aspect of your operations, your business challenges and family dynamics.

Start Planning

If your family-owned business is to benefit from an advisory board, you must first define the board’s objectives and goals based on your business needs. Generally, an advisory board focuses on addressing major or strategic issues such as succession planning, compensation, growth and expansion — addressing one or several important matters at a time.

You will need to determine the leadership role of the advisory board. It may be more practical for you to serve as the advisory board’s chair. But as your business grows and demands on your time increase, delegate this responsibility to a board member.

Handpick Members

For a more complete perspective, you will 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. Your professional advisors, such as your accountant, financial advisor or lawyer, should participate as they are knowledgeable about your company’s goals, issues and staff.

Specify the desired traits and qualifications, such as executive or leadership skills, years of experience, competence, education, affiliations or achievements, required of members to fulfill the board’s purpose. But also seek out individuals who are willing to be honest and forthcoming in their observations and provide constructive criticism. Procure persons able to exercise discretion with confidential documents and 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. Initially, monthly meetings will help the group establish and maintain a rapport and relevance to the business. Once they establish a rapport, quarterly meetings will be sufficient.

You should cover travel expenses that advisory board members incur, as well as monetary compensation for their time. Cash compensation makes sense for family-owned businesses that want to remain closely held, while companies that plan to become listed, may want to issue stock.

Make the Move

Whether your family-owned business is small or large, you likely will benefit from bringing in independent trusted business advisors to serve on your advisory board. They can act as independent advisors, thus enabling your company to function at a higher level with minimal internal strife.

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