Guest blog: Does your family business need an advisory board?
(Editor’s Note: This is the fifth in a series of columns by family business leaders and advisors with information and ideas about topics unique to family businesses, developed in conjunction with the Conway Center for Family Business.)
by Bea Wolper
Does a family-owned business need an advisory board? YES! Advisory boards create accountability and provide independent and unbiased feedback and advice on challenges and opportunities in your business.
Before you contact potential advisory board members, consider the following:
- Know the difference between an advisory board and a board of directors. An effective advisory board can provide non-binding but informed guidance. In contrast, a board of directors has formal legal authority over a company and a fiduciary duty to stockholders.
- If you are not willing to execute or give serious consideration to board advice, it is best not to have one.
- Think strategically about who you want on the advisory board. It is best to have people who are intrigued by what your business does, who have experience on boards, and who have knowledge of, or at least an interest in, your industry.
How to recruit advisory board members:
- Ask CEOs in non-competing industries.
- Contact the Conway Center for Family Business (www.FamilyBusinessCenter.com) for suggested names of advisory board members.
- Have a memorandum describing your business and business culture.
- Be honest about your business challenges and lay out your business plan or short and long term goals.
- Detail how the board will operate, including compensation, number of meetings, etc.
- Compensation varies by company. Some calculate their own hourly or daily salary (excluding bonuses) and pay board members for their time at that rate; others give shares or options (1-2 percent depending);
- Others provide compensation only for travel time and incidental expenses; some offer no compensation at all.
Terms of service:
- Appoint board members to a specific term (1-2 years). It is easier to renew members than to terminate them.
- Utilize rotating terms so that one or two new members join each term as others rotate off.
Once the board is in place:
- Set expectations. Be upfront about time commitments, responsibilities and terms of office. It is also important that you specify the areas in which you're seeking help, and ask for and expect honest feedback from your board members.
- Listen to their advice.
- State clearly what compensation the advisor is receiving (shares, options, salary, etc.).
- Have nondisclosure and indemnification clauses in place.
- Ask advisors to notify you if their work with competitors might compromise your business so that you may terminate the relationship or at least set disclosure limits while they are so engaged.
- Have a termination policy in place that states either party may terminate at any time without further payment or penalty (and state what will happen with shares or options if they have been granted).
Outside advisors are a critical resource for family-owned businesses. If you haven’t already, do yourself, your family and your business a favor and start an advisory board today.
Bea Wolper is a co-founder of the Conway Center for Family Business and serves as an advisory board member. She facilitates the Center’s Women in Family Business and Succession Planning Peer Groups. She is a partner in the law firm of Emens & Wolper LLP, in Columbus, Ohio. Her practice focuses on succession planning, estate planning, general corporate law, contracts and the buying and selling of businesses, with an emphasis on family-owned businesses. Wolper and her husband, Dick Emens, the Center’s Executive Director, co-authored Family Business Basics: The Guide to Family Business Financial Success.
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