As the late management guru and author Peter Drucker once said: “Management is doing things right; leadership is doing the right things.”1
I’ve learned over the years that effective management of an organization is more art than science. Often, the time consuming, day-to-day operations required of family business owners don’t leave time for the longer term strategic planning that’s not only critical to success, but also an important component of effective leadership.
An advisory board, properly composed and implemented, can be an effective tool for the family business with respect to strategic planning and corporate governance. A good advisory board provides a way for leaders to reach beyond their inner circle—which often only includes stakeholders in the business, usually relatives—for a broad spectrum of knowledge and experience.
Estate-planning professionals are often in the perfect position to recommend an advisory board to a client who likely will benefit. These professionals may have intimate knowledge regarding growth, succession, leadership and other strategic challenges a family business or executive may face in real time. The planning professional may also be aware of financial trends revealed by the company’s data, but with the perspective of a high level outsider.
Not a Board of Directors
Don’t confuse an advisory board with a board of directors, which governs with fiduciary obligations to the business’ owners and others. In contrast, an advisory board provides non-binding advice without fiduciary duties or other liability concerns. As such, estate planners could participate in and help staff the advisory board.
The advisory board should be tapped to address the big picture items that are often pushed aside while running the day-to-day business. The board should be the primary resource for larger initiatives and strategic planning and provide a forum for constructive input and feedback. With the right people in place, the diverse experience and perspective of the board members are particularly beneficial for these 30,000-foot conversations.
Forward-thinking family business leaders should create an organizational structure that encourages conversations related to long-term strategic planning, including succession planning, acquisition and disposition strategies, financing strategies, key hires, non-family leadership and evaluating competitive strengths and weaknesses.
While an individual leader’s circumstances and goals will ultimately guide this approach, the influence of smart advisory board members and resources will help prioritize and break down the larger strategies into specific processes.
Size and Composition
Implementing an effective advisory board is a work-in-progress. Family business leaders should start small and identify three to five respected individuals to serve. Consider individuals who will bring value to the company by applying strengths different from those of the leadership already in place. By starting small, finding the right people becomes an easier task.
There are attractive candidates all around you. A good place to start is with respected business
associates—people whose actions and impact the business leader has seen firsthand. These individuals may be viable candidates themselves, or their relationships can be leveraged to identify additional candidates.
Qualities of excellent participants include:
• Diversity of knowledge and experience. Advisory board members should fill in the gaps in knowledge and experience in areas that are pertinent to the company’s strategic planning goals. For example, experience with mergers and acquisitions, banking and finance, human resources, sales and marketing, distribution and other substantive expertise can be beneficial to a family business.
• Strategic thinking. In most family businesses, there are plenty of people already working in the business but very few working on the business. It’s preferable that advisors not be engrossed in the day-to-day operations; they should be “outsiders” with strategic perspective. A good advisory board looks to the future, helping the business leader to consider the challenges and opportunities that lie ahead.
Expect board composition to change over time, consistent with the goals of the business, internal talent and resources available to the company and the individual availability of the advisors.
Compensation and Commitment
Providing reasonable compensation to board members not only gives them meaningful incentive for regular participation, but also reinforces to the family business leader that this structure is an investment in the company’s future and should be managed accordingly.
Upon inviting participants, set and commit to expectations of time, responsibilities and length of service. Compensation should be tailored to how important each respective advisory board member’s role is and can take many forms, including a stipend, holding the meetings at a great resort followed by an afternoon off for golfing and relaxing or similar perks.
While informal in nature, an advisory board should be implemented through written agreements. Creating the proper structure and documentation will increase the chances that an advisory board will work for the business. The proper initial documentation often includes:
• A statement of purpose or charter. This document will serve as the written framework of the board’s purpose, member duties and basic rules or governance (see “Sample Statement of Purpose,” p. 37);
• A board member agreement. This document will formalize the invitation to a prospective member to join the board and, importantly, will describe expectations and include a nondisclosure agreement (see “Sample Board Member Agreement,” p. 38);
• A form of initial meeting agenda. This document will provide for introductions, an overview of the board’s purpose and initial discussion topics to facilitate an orderly and productive meeting; and
• An executive summary information packet. This packet will give information on the business and its history to begin educating board members.
Many family business leaders serve as facilitators for advisory board meetings, particularly routine discussions. But, consider engaging an outside facilitator for major discussions, so that the business owner can do more listening than talking and, ultimately, be better positioned to consider the perspectives around the room, without worrying about the details of moving a meeting forward.
An advisory board must be transparent and frank, and the family business leader should be open to constructive criticism. Many times, advisory board members make suggestions that a family business owner has already considered and tried. Keep in mind that the advisory board members don’t operate the business on a daily basis and may not be aware of accomplishments or pain points. Respect all feedback and address it in a positive manner. And, far more time in these meetings should be spent on the future than on the past.
On an ongoing basis and outside of regular advisory board meetings, the family business leader should keep advisory board members apprised with business updates, even in areas in which their guidance isn’t being sought. Well-informed board members are of greater value, and keeping the two-way dialogue open helps to make them feel appreciated and the family business leader more aware of the unique perspective each member brings.
Before the Meeting
Effective advisory board meetings require forethought and planning by the business owner. Examining threats and opportunities currently facing the company often yields the issue that’s most worth the board members’ time and perspective.
Before each meeting, the business leader should review and answer the following questions:
• How is the company or organization performing compared to its strategic plans and goals?
• What’s the status of the budget?
• What opportunities exist for the company over the next several months?
• What threats exist?
• What steps have been taken to shore up any weaknesses?
• What new initiatives have started to create opportunities?
• What issues of concern keep the business owner up at night?
• What information should be shared with the advisory board in advance of the meeting? Consider budgets, sales forecasting spreadsheets and other tools.
Prepare for meetings well in advance. A thoughtful and thorough agenda is essential to an effective meeting and should be distributed to all participants ahead of time to ensure time to adequately prepare and brainstorm.
Be respectful of the advisory board’s time by starting on time and sticking to the agenda.
In future meetings, start with a brief review of what was covered at the previous meeting and the resulting action steps taken by the company. Invite the advisory board members to provide feedback.
Selection of members without regard to their abilities and the needs of the business will guarantee mediocrity. If a family business leader realizes that he’s made a bad choice when selecting an advisory board member, either because a skill set is missing or the individual isn’t engaged, respectfully remove him. Often, periodic renewals can provide both sides the ability to respectfully part ways if the situation isn’t ideal. Unlike a board of directors, advisors can be replaced without legal headaches.
Key to Success
Commitment is a key to success, and lack of commitment will lead to failure. Owners who cancel meetings or come to them unprepared send a clear message to the board members. At the same time, board members who do the same fail to meet their most fundamental obligations to the owners.
Likewise, egos can be a major impediment to a successful advisory board. Some family business leaders start down the advisory board path before they realize that they don’t want to listen to anyone and aren’t receptive to advice. If a family business leader is self-aware enough to recognize shortcomings when it comes to constructive feedback, he can be mindful of this weakness and make every effort to rise above it. Otherwise, don’t waste time creating an advisory board.
1. Peter Drucker, The Essential Drucker, HarperBusiness (July 22, 2008).