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Helping Family Businesses
Prosper Across Generations®

Bringing in Fresh Air: Using a Board of Advisors

By Bernard Kliska, Ph.D

Sometimes the same strengths that help build a thriving family business can also become its weakness. Loyalty and an intimate understanding of each others styles of communicating and personalities are unique qualities that bind family businesses together. But those qualities can also lead to a distorted perspective about long-range goals and to confusion about the differences between a family business and a family. One of the best ways to make certain that a family's strengths do not become the business tragic or fatal flaw is to hire a board of advisors.

I often notice that family businesses are reluctant to bring in outsiders. In fact, it's estimated that only about ten to fifteen percent of mid-sized family businesses have an outside board. That's understandable: after all, outsiders (except for customers) weren't responsible for the business success. Family businesses were frequently started by the kinds of entrepreneurs who weren't exactly known for soliciting or taking advice. But as businesses enter their second or third generations, that single, dominating force has typically spread among several family members. While that allows for greater flexibility a necessary attribute in today's complicated world it also allows for more confusion between family and business concerns.

A board of advisors creates a firewall between those sometimes conflicting concerns. It also lets in fresh air. After a certain amount of time, too much intimacy breeds insularity. A closed environment may have its advantages, especially at the beginning of a venture, but it can also become an echo chamber in which everyone's habitual views and personalities begin bouncing around and amplifying each other, shutting off important input and ideas from the rest of the world.

What exactly is a board of advisors? It's a small number of outside experts, usually three to five, who are chosen for their expertise and talent in particular areas of business, such as taxation, marketing, sales, legal concerns or technical development. They offer advice on everything from dividends and other compensations to improving quality, efficiency, strategy and performance. Boards are especially useful when they're chosen to supplement those areas in which your company is weak or conflictual. Unlike a board of directors or fiduciary board, their advice is non-binding. For this reason, many family businesses see a board of advisors as less threatening than a fiduciary board. But if you've chosen the right people leaders in their field for the right reasons to give you broad perspective and fresher ideas that are not entangled with family loyalties and relationships it s a good idea to take their advice. Many businesses find a board of advisors so useful that they eventually hire a fiduciary board.

Boards of advisors are more informal than fiduciary boards. They can meet regularly (often quarterly) or as needed. They may be willing to be associated with your business and publicly referenced as advisors, or they can give input informally on a one-on-one basis. They can be paid or they may help out for goodwill and expenses, although larger companies usually pay them per meeting.

By helping to separate business from family matters, boards free families to be families. For this reason, it is important that both the board and the family understand that the board is not there to deal with family disagreements and problems but to focus on business matters. Their only interest is to help the business grow and thrive.

Consultants, not boards, should be used for family problems. The family should meet together to discuss whether to hire a board and to review their reasons for doing so, so that everyone understands its real function.

A board of advisors can also be a reassuring, effective selling point to shareholders and others who have an interest in the family's business. It tells everyone that the business is forward-looking and committed to growth that it has a focus extending beyond the short-term welfare of the family, and that it is open to fresh perspectives. It is important, when presenting the decision to take on a board of advisors, to stress that the family's values which have always supported and infused the business, will remain firmly in place, and of course, to communicate those values to the board.

Even inside a nice, warm cocoon, the air eventually becomes stale, and when it happens slowly enough, you don t notice it until it's too late. If chosen and set up wisely, a board of advisors does not threaten the family s cohesiveness; in fact, it can enhance it and enhance profits as well.

Bernard Kliska, Ph.D. is an associate with the Family Business Consulting Group, Inc.

 

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