In the recent difficult economic times, closely companies have been under extreme pressure to produce results, which can lead to increased tensions between company executives. If the executives happen to be family members, the strain can be even greater because of possible family conflicts or emotional ties. To maintain an even keel and ensure that decisions are made in the best interest of the company, forming an advisory board may be a smart option.
Advisory Board Responsibilities
An advisory board serves in a consulting capacity and isn’t bound by the fiduciary responsibility to the company and shareholders that a regular board of directors must observe. So, unlike a regular board, an advisory board can feel freer to think creatively to develop solutions to business problems and identify new business opportunities.
Advisory boards also can address differences among family members on issues such as the direction the company should move in, how to expand and diversify the business, succession and retirement planning, and performance management and compensation.
What values can an advisory board bring to your company? Most important, it provides impartial, independent perspective to problems, as well as unity and 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.
To fully realize this value, you will need to be open about every aspect of your operations, your business challenges and family dynamics.
5 Steps to Forming an Advisory Board
If you believe your family business could benefit from an advisory board, here are five key steps to consider when creating it:
- Define purpose. An advisory board can define its scope of purpose and goals. Generally, it 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.
- Provide initial leadership. Initially, 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 another board member.
- Select the right mix of members. 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 networking with business, industry, community, academic and philanthropic organizations. You also may want your professional advisors to participate, such as your accountant, financial advisor or lawyer, because they’re already knowledgeable about your company’s goals, issues, staff, and business plans. 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 for the business affairs and maintaining discretion with sensitive business and family issues.
- Define operations. 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, the board should meet quarterly.
- Set compensation. You should cover costs 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.
Does your business need an advisory board?
If your family business is under the gun to produce profits, and infighting among family members is affecting business decisions, it’s time to consider forming an advisory board. You’ll have to invest time and money to form the board, but doing so could not only save your family business, it could help it grow.