All businesses can benefit from outside advice. But it can be especially valuable to family or closely held businesses, which tend to be more insular. After all, in many cases management is made up of family members and friends who’ve worked in the business for decades, perhaps never having been employed elsewhere. In addition, family dynamics can create conflicts that are tough to settle when all of the players have both a professional and personal stake in the outcome. If these issues sound all too familiar, Doeren Mayhew suggests your business should consider setting up an advisory board.
An advisory board serves in a consulting capacity and isn’t bound by the fiduciary responsibility to the company and shareholders that a public company board of directors must observe. So an advisory board can think more creatively to develop solutions to business problems and identify new business opportunities.
Advisory boards also can address differences among family employees on issues such as what direction the company should move, how to expand and diversify the business, succession and retirement planning, and performance management and compensation.
What value can an advisory board bring to your company? Most importantly, it provides impartial, independent perspective on problems, as well as a “safe place” to develop collaborative solutions to business and family issues. In addition, it can offer professional talent and expertise your company may be lacking and broaden thinking to stimulate fresh ideas and identify new opportunities.
To fully realize this value, you must be open about every aspect of your operations, your business challenges and family dynamics.
If you believe your business could benefit from an advisory board, you must first define the board’s purpose and goals. Generally, an advisory board focuses on addressing major or strategic issues such as succession planning, compensation, growth and expansion — tackling one or a couple of important matters at a time. But to be more effective, you may want to outline the board’s objectives based on your business’ goals and needs.
You’ll also need to determine the role of leadership. It may be more practical for you to serve as the advisory board’s leader. But as your business grows in size and complexity, and demands on your time increase, delegate this responsibility to a board member.
To provide a more complete perspective, you’ll want a mix of professionals from varying fields, demographics and backgrounds. An effective way to recruit advisory board members is to network with business, industry, community, academic and philanthropic organizations. You also may want your professional advisors, such as your CPA, financial advisor, lawyer and executive recruiters to participate because they’re already knowledgeable about your company’s goals, issues and staff. Professionals who worked in your industry but may now be retired would also be beneficial in providing knowledge or experience about where you want to go.
Specify the mix of traits and qualifications — executive or leadership skills, years of experience, competencies, education, affiliations or achievements — needed in members to fulfill the board’s purpose. But also look for individuals who are willing to be frank with their observations and provide constructive advice while observing confidentiality agreements and maintaining discretion with sensitive business and family issues.
How often your board should meet and the degree of formality for conducting meetings and recording minutes depends on the number of members and the board’s responsibilities. Generally, meeting at least monthly initially will help the group establish and maintain rapport and relevance to the business. Once it has been established for a while, quarterly meetings may be sufficient.
You should cover costs that advisory board members incur in traveling to and from meetings, and pay them for their time. Cash compensation makes sense for family businesses wanting to remain closely held, while companies planning to become listed may want to issue stock instead.
Whether your business is small or large, you likely will benefit from bringing in trusted business professionals from outside the organization to serve on an advisory board. They can act as impartial advisors, thus enabling your company to function at a higher level with minimal conflict.
Contact us to begin leveraging Doeren Mayhew’s CPAs and advisors’ expertise for your business’ advisory board.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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