The period of transition from entrepreneurial venture to stable, strategy directed business is a critical one, but it's one that many family businesses never make.
The family managers may be superb operators/marketers/manufacturers in the present, but relatively unversed in planning the future.
As the business plateaus out into a steady state the family can't seem to come up with the next big idea or finds itself bemired in operational issues rather than looking at the longer term direction and driving the initiatives needed to get the business there.
At this stage stagnation can set in.
That's where a family business advisory board (FBAB) can be a critical player in moving a family business to the next level - by overcoming planning inertia and introducing sound strategic advice.
Increase the range of management know-how Advisory board members are typically selected for their detailed knowledge of the firm or of specific aspects of the firm such as its operations, marketing or financial performance and the industry in which it operates.
They should be able to assist in evaluating business ideas and opportunities and even in developing the succession and ownership transition program of the business.
Their experience, and often their skills, should provide a depth of range that greatly extends the current managerial capacity of the business.
In practice, studies have shown that most CEOs use their boards to fulfill multiple mandates.
Among the most common are strategy-setting, as a sounding board for ideas, as mentors to extend their own and other manager's skills and to suggest and assess new business development ideas.
A typical first run at an advisory board might consist of a CPA, an attorney, the owner-manager(s), an industry consultant, and possibly a family member or non-participating shareholder.
As the business evolves so the range of expertise needed may suggest changes to membership of the board.
Outside board members can help get troubled business or ones in financial difficulties back on track; can help new entrepreneurs avoid mistakes that could leave them overextended or struggling to survive.
In short, they can offer considered advice that a less experienced executive management team simply lacks.
It's about getting good advice, not losing control An FBAB is NOT a board of directors.
It does not have the legal responsibilities and authority of a board of directors but is, rather, an informal group of (mainly external) advisors chosen by a CEO to provide guidance and advice.
Unlike directives from a board of directors, advice from advisors can be ignored if the owners wish and their advisors can be laid off or replaced without a consenting vote of any sort being required.
While advisory board members may be paid for their services the deal can be extremely variable in nature ranging from meeting only their actual expenses for the time and work they put in, to a reasonable retainer.
Adding value Even though there is little research to date demonstrating a direct link between advisory board activity and growth indicators, there is a growing amount of anecdotal evidence from surveys and business articles that growth oriented family firms find them a key asset in ratcheting up their capabilities.
Pulling together the information on how these boards operate, it's possible to suggest a number of factors that contribute to ensuring an advisory board does add value to the business.
The people appointed to the board should either:
Appointment to a board should be for a predetermined period with the option of renewing the appointment if mutually agreeable to the parties.
An open mind CEOs in their fear of losing control or threatened by the board's suggestions often do ignore the board's advice and lose opportunities in the process.
It is damaging to morale and may well result in the advisor leaving or, in a worst case scenario, render the whole board ineffectual.
The same sort of closed mind or fear based thinking can also lead them to withhold information that board members are reliant on to make valid or sensible suggestions.
Board members can reasonably expect to be provided with the business' financials, to tour its facilities and meet family members.
At board meetings managers should be present to provide information on areas of operations under their control and that information should be accurate and full - and not altered to suit what they think their (family) boss might want to hear.
The underlying themes must be honesty, openness and integrity if a board is to do its job effectively.
An active, effective outside advisory board offering advice and mentoring is the single greatest resource for a family business by providing a way to retain their control and still enhance business performance.
The family managers may be superb operators/marketers/manufacturers in the present, but relatively unversed in planning the future.
As the business plateaus out into a steady state the family can't seem to come up with the next big idea or finds itself bemired in operational issues rather than looking at the longer term direction and driving the initiatives needed to get the business there.
At this stage stagnation can set in.
That's where a family business advisory board (FBAB) can be a critical player in moving a family business to the next level - by overcoming planning inertia and introducing sound strategic advice.
Increase the range of management know-how Advisory board members are typically selected for their detailed knowledge of the firm or of specific aspects of the firm such as its operations, marketing or financial performance and the industry in which it operates.
They should be able to assist in evaluating business ideas and opportunities and even in developing the succession and ownership transition program of the business.
Their experience, and often their skills, should provide a depth of range that greatly extends the current managerial capacity of the business.
In practice, studies have shown that most CEOs use their boards to fulfill multiple mandates.
Among the most common are strategy-setting, as a sounding board for ideas, as mentors to extend their own and other manager's skills and to suggest and assess new business development ideas.
A typical first run at an advisory board might consist of a CPA, an attorney, the owner-manager(s), an industry consultant, and possibly a family member or non-participating shareholder.
As the business evolves so the range of expertise needed may suggest changes to membership of the board.
Outside board members can help get troubled business or ones in financial difficulties back on track; can help new entrepreneurs avoid mistakes that could leave them overextended or struggling to survive.
In short, they can offer considered advice that a less experienced executive management team simply lacks.
It's about getting good advice, not losing control An FBAB is NOT a board of directors.
It does not have the legal responsibilities and authority of a board of directors but is, rather, an informal group of (mainly external) advisors chosen by a CEO to provide guidance and advice.
Unlike directives from a board of directors, advice from advisors can be ignored if the owners wish and their advisors can be laid off or replaced without a consenting vote of any sort being required.
While advisory board members may be paid for their services the deal can be extremely variable in nature ranging from meeting only their actual expenses for the time and work they put in, to a reasonable retainer.
Adding value Even though there is little research to date demonstrating a direct link between advisory board activity and growth indicators, there is a growing amount of anecdotal evidence from surveys and business articles that growth oriented family firms find them a key asset in ratcheting up their capabilities.
Pulling together the information on how these boards operate, it's possible to suggest a number of factors that contribute to ensuring an advisory board does add value to the business.
The people appointed to the board should either:
- have specific skills the business has identified as being necessary to achieve its goals (for instance in marketing), or
- be of a usefully generalist nature (eg, a business consultant) to be able to offer advice or test out the viability of suggestions.
Appointment to a board should be for a predetermined period with the option of renewing the appointment if mutually agreeable to the parties.
An open mind CEOs in their fear of losing control or threatened by the board's suggestions often do ignore the board's advice and lose opportunities in the process.
It is damaging to morale and may well result in the advisor leaving or, in a worst case scenario, render the whole board ineffectual.
The same sort of closed mind or fear based thinking can also lead them to withhold information that board members are reliant on to make valid or sensible suggestions.
Board members can reasonably expect to be provided with the business' financials, to tour its facilities and meet family members.
At board meetings managers should be present to provide information on areas of operations under their control and that information should be accurate and full - and not altered to suit what they think their (family) boss might want to hear.
The underlying themes must be honesty, openness and integrity if a board is to do its job effectively.
An active, effective outside advisory board offering advice and mentoring is the single greatest resource for a family business by providing a way to retain their control and still enhance business performance.
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