Three Habits of Highly Successful Family Businesses: Advisory Boards
Why is it that so few family businesses make it into future generations?
Often the earlier generation in a family business rides a wave of success and everything in the business and family runs smoothly. Like a sports team, when the team is in first place, the clubhouse issues are smoothed over, but when the team falls into last place, frustration builds and negativity takes over the team.
In an established family business, issues develop when either the success of the business slows down or the next generation is entering the family business. Everything just gets more difficult towards the end of the first generation’s run.
There are three things that family businesses use to maintain success and smooth the transition into the next generation:
- Advisory Boards
- Strategic Planning
- Family Meetings
Most family businesses setup an advisory board when a situation becomes too challenging to handle in-house.
Boards help the business to think more strategically, serve as a sounding board to validate ideas, and provide a source of expertise to take the business to the next level.
The most common issues that lead companies to set up an advisory board:
- Company financial hardships
- Improving family communication
- Serving as a tiebreaker for tough decisions when family members disagree
- Helping move stubborn projects forward
- Gaining experience of outside advisors to supplement the family’s skills set
- New ideas by thinking outside the box
- Serve as a sounding board to validate emerging business opportunities
- An objective outside voice to help put opportunities in perspective
10 thoughts on making advisory boards more effective (from real-life experiences):
- Don’t wait until an issue turns into a crisis to form an advisory board. Most businesses wait too long to form an advisory board and tend to grow impatient because they needed a board “yesterday.”
- Even though textbook theory says that family issues should be kept out of the advisory board, in real life they end up creeping onto the board agenda. Select some board members with family business backgrounds who will be more understanding and patient when it comes to these issues
- When forming the board, spend the most time on the goals you want to accomplish. Work backwards and identify the success factor of the board. Get a buy-in from each family member on these objectives. Everything else, including board member selection and agenda topics, drives off these agreed upon objectives.
- Keep the earlier meeting agenda topics “safe” and avoid sensitive issues until the board develops chemistry and trust with each other.
- Most boards are formed for a specific urgent issue that needs to be resolved. Almost always, this specific issue is not what the “true” underlying issue is. Probe deeper to find out what the hidden issues are. This will be a major breakthrough.
- Handout meeting materials (financials, etc.) in advance of the meeting to avoid spending time getting everyone up to speed.
- When you review the financials and other reports in the meeting, keep the discussion to the variances and the beta comparisons for each report to allow more time for the strategic issues. The worst thing is when there isn’t enough time to discuss the strategic issues because the financials review took too long.
- Don’t get caught up with the compensation for the board members. The board members’ pay pales in comparison to the future benefits they will generate.
- Choose the least obvious person to chair your board. Don’t go with the usual oldest or most senior level person. It helps them become more engaged and reset the meeting culture with a new voice.
- Most importantly, keep it fun. Discussing strategy and opportunities for growing your business is the most fun part of your job.
Reprinted with permission of Northeastern University Center for Family Business.
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