The Advisory Board: A Powerful Tool for Business Succession
When it comes to business succession, the creation of an Advisory Board is a strategy that can produce many benefits for a family business engaged in determining the future.
In general, family businesses utilizing an Advisory Board as part of their succession management process tend to thrive in size and profitability. And, not surprisingly, they also are inclined to have healthy family relationships and successfully transition from one generation of family ownership to the next.
For most family businesses interested in implementing the Advisory Board strategy, the time required to prepare for an initial meeting will range from 6-24 months; this point cannot be underscored enough as it will take that amount of time to conduct the due diligence required to effectively utilize this vital consultative panel.
Many architects and civil engineers will tell you the key to a successful construction project is mostly about site preparation work; the same concept applies to getting the family business ready to support the activities of their Advisory Board.
The members of an Advisory Board are not family business consultants. An Advisory Board may consist of one or several objective and experienced business people who are unrelated to the business at hand. Impartiality is pivotal to the composition of an Advisory Board as an “outsider” can bring perspective to both the issues and
opportunities that face the family business.
It should be noted that Advisory Board members are not trained or experienced in dealing with family business dynamics. Those difficult family issues must be recognized and resolved before the Advisory Board can go to work. If these concerns are not dealt with honestly and thoroughly beforehand, the succession management process will be stalled…and at times completely derailed.
A professional succession management program facilitated by a qualified financial consultant can help guide the Advisory Board process. As an example, the approach taken by Northeast VisionLink includes a structured, yet informal meeting for frank conversation about the history of the family business, its present situation and anticipated future – with the goal of opening the lines of communication to allow the family to think about working together as a cohesive group. Individuals may have varying personal goals, but with the guidance of a qualified consultant, the shared common objectives for the business as a whole will become more visible.
One-on-one interviews with all family members involved in the business as well as key non-family members of the management team is part of the due diligence conducted by a financial consultant; these sessions provide individuals the opportunity to discuss their personal goals and aspirations as well as their ideas and concerns about the family legacy, all in a confidential manner. The interviews serve as the foundation for a recommended course of action or strategic plan by an Advisory Board.
It should not be forgotten that an Advisory Board has a business orientation; that is to make the business more successful. The needs and goals of the family drive the strategic objectives for the business and, from a succession management perspective, gives the Advisory Board a framework to build upon.
The next step is putting together a "to do" list for the family and for the business - and getting agreement on a time frame for completion. At this point, participants are in fact helping the family business create the infrastructure needed to grow the business for both the present and the future. This is also the time period when a financial consultant can begin to determine the composition of people that could be recruited for the Advisory Board.
Part of the challenge of a financial consultant is to ensure the correct personal chemistry between the family and board members. It is extremely important that they share common values. Likewise, confidentiality is always an important element of the recruiting process. A financial consultant can meet and talk to potential board members as a representative of the family without divulging the identity of the family business.
It must be noted, however that once an Advisory Board is in place it will be privy to sensitive infrastructure materials, including a formal business plan, a written succession plan, and Buy/Sell Agreements.
An Advisory Board can be a powerful tool for growing a business and maintaining healthy family relationships. Most importantly, it can create a safety net for the family and the business in the event of a catastrophic occurrence, such as the unexpected death of the business owner.
Next month we’ll get into specifics regarding the composition of an Advisory Board, its intrinsic benefits and suggested compensation for participants.