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Legal Boards are Better

We're often asked, "Does it really matter if a family business' board is a legal board or an advisory board?" In the spirit of trying to lessen resistance to the board idea, we've usually responded, "Legal boards are better; they express more commitment to everyone. But advisory boards are almost as good, so if it's more acceptable to you, an advisory board is fine...."

Perhaps that advice is still the best practical advice. But two recent experiences have greatly strengthened my resolve to champion more fervently legal boards over advisory boards.

In one company, I strongly felt the incumbent CFO was not competent for the job and I so advised on many occasions. I knew I was heard and my views were respected. In the midst of much turmoil, the issue was deferred, understandably, for many months. Eventually the consequences were most serious and painful, and the CFO was let go in a time of near crisis. I know in my heart that if I had been a legal director rather than an advisory board member, I would have worked harder to substantiate my intuition; I would have pushed harder my conclusion; and I would have been heard more clearly and forcefully.

In a second family company, the CEO-patriarch had dangerous emergency surgery. While in this instance, everything worked out fine, the advisory board members weren't informed of the critical event for a week. Since the inception of the advisory board, the CEO had argued that a formal, legal board was an unnecessary inconvenience until his children inherited the business. In the meantime, he said, he'd treat the advisory board "just like a real one" to help prepare the next generation. I think I helped him communicate the wrong message to his family.

I know going forward, it will take an extraordinary argument to convince me that an advisory board is "almost as good" as a legal board.

John L. Ward




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