The Fundamentals of a Family-Business Advisory Board
BY Ralph Ward
Advisory boards are growing popular at family-held companies, where a "guidance but not governance" role is well suited to dealing with family owners. Jack Veale, president of a Connecticut consulting firm called Part Time CFO, has helped shape a number of advisory boards for family firms. He has observed the following:
"Family firms, especially the founders, seek a group of mentors. They usually want people they already trust -- the CPA, the lawyer, their good friends." While independence is usually the benchmark for any board, Veale sees cronyism as both a reflection and strength of the family advisory board. "Don't dismiss the element of trustee in the family dynamic, the advisory board is all about trust. You want someone who can guide your children." Still, this means picking talent whom you trust, "not just golfing buddies."
Use the family advisory board after you sort out your family battles. "[Advisory boards] aren't effective with the highest level of family issues -- those have to be solved first. They're not family psychiatrists. It';s your job to get the relatives to stop fighting over who threw ice cream at whom at age 6." Or for that matter, which child has been most "loyal" and deserves the top slot. Use the family advisory board to advise on business matters.
What sort of business matters? "How to buy other companies, mergers, financing, launching new products, or entering new markets." Board members can also advise on trickier issues, such as ownership structure and succession, and they should be willing to challenge the CEO.
At one of Veale's advisory panels, two managing brothers were pulling the company in different directions. "We challenged the brothers as to what the direction of the company should be and helped facilitate an agreement."
As to board mechanics, "the size of the advisory board is not large" says Veale, "3 to 5 members, though some are as large as 10." If the founder has 10 friends who are savvy in business, he probably already has business matters well in hand.
Advisory boards are typically paid by the meeting, from $700 to $2,000, and meetings are usually quarterly, running a half day, with some lasting a full day. The family CEO chairs the advisory board meeting. Other family members can attend in an ex-officio status, but it's wise for the CEO to include some private time with the board.