So, was it your lawyer or your accountant that suggested you needed an advisory board?
In all probability, if you have an advisory board, it won’t have been recommended by a governance professional. They understand something that professional services specialists typically don’t – that advice without responsibility rarely makes a difference.
Family businesses are notorious for their opaque structures, secrecy around results and propensity for telling half of the story. At some point in time – maybe in the early days of the business – that was probably a good idea. When operations are small, or big risks are being taken, there can be a good case for keeping people in the dark. However, once you reach a certain level of success, there is a clear imperative to harness the truth and to become strategic.
When we start to talk about strategy in this context, we are really starting to talk about formalising governance. That’s the beginning of the ‘do I-don’t I’ debate around advisory boards. Good governance is essentially about having a structured process for decision-making, supported by accurate, measurable and validated data. When data is well structured, and quality decision-making processes are in place, clarity can be achieved.
So why not an advisory board?
If you don’t have good governance in place, advisory boards are a waste of time. Good governance processes must come first. Then, and only then, the potential for an advisory board to benefit the business comes into play. Even still, an advisory board will bring new and varied opinions to the table – and that comes with the risk of opinions with no real accountability. You might have six people in a room who are great at what they do. That means six opinions and no true steps toward better governance. You’re used to paying lawyers for legal advice and accountants for accounting advice – and that’s how they make their living, so that advice is probably pretty good. However, with notable exceptions, their strategic advice outside of their core area of expertise is often questionable. You need an integrated, facilitated process to make the best decisions for shareholders.
What’s the alternative?
Based on more than 30 years of working with family businesses, I recommend that families first learn the disciplines of governance before they consider bringing outsiders in to give guidance. Typically, this will involve the creation of a family board if they don’t already have one. It may then involve creating more rigour around the family board. Historically, and across generations, families have added directors from the next generation, creating a board without defining its real structure or even moving the authority for making decisions from the founders to the board. Positional power without responsibility generally only creates confusion.
With the family board in place, and some disciplines around governance, the next action I recommend is to appoint a non-director chairperson. Their responsibility is to bring stronger process, quality governance guidance, effective meeting management, better decision-making, and a formalising of compliance to what is often the rabble of the family board meeting. The task of the chairperson is to set the truth free. To be effective, they will need to see everything, so the selection of the right person is critical – a highly disciplined and incredibly discrete individual to sit beside you and mentor all family members to become effective custodians of the family’s future. I recommend family businesses start with a non-director chairperson because directors are liable by law. Having a non-director involved allows the family to make decisions without that liability becoming an issue, while still having the benefit of an independent, outside voice. Additional independent directors can then be added to the process over time, when the maturity of governance becomes a protection from liability for all involved.
This approach creates the right governance environment where decision-making, accountability and responsibility function at the right levels to drive the strategy and the business forward.