(Part 2)
THE composition of the board should complement the knowledge and skill set of the owners. Good advisory boards will have at least one member with strong financial skills, one with good content or industry knowledge, and others with strong business backgrounds. However, board composition can change over time depending on a number of factors. A new business may need board members with more “start-up” and financing knowledge than a more mature business. When ramping up a rapidly growing business, human resources expertise may be essential. A new generation of owners in the business may want broad managerial and business advice/counselling.
Once the owners know what they want, the next challenge is finding the right individuals
It is important that owners know what they are getting when they make the offer of a board seat. A good place to start is with a core of business associates; people whom you have personally seen in action. Don’t dismiss the element of trust. In the family dynamic, the advisory board is all about trust. You want someone who can also guide your children. This means picking talent whom you trust, “not just golfing buddies.” Lack of trust will hamper a board.
Full disclosure of information and open honest dialogue are hallmarks of successful advisory boards. Failure to share key financial information and other intelligence essential to the board’s function will result in advice that is, at best, based on a superficial understanding of the business and, at worst will put the business at risk.
Business owners surrounded by relatives, long-time friends and employees can easily develop a myopic view of the business and the outside world. A good advisory board puts new points of view in front of ownership and challenges the sacred cows and tribal knowledge that can stymie progress.
Once you have selected one or more of these associates to serve on your board, you can proceed to the next level, which would be board candidates whom you don’t know well, but have been referred by your trusted associates.
If the above steps are not possible, the next step is to seek referrals from your service providers. Your banker, attorney, CPA and insurance agent are likely to know many capable people in your business community. A professional family business consultant can be a tremendous asset; he/she can help establish the family council and advisory board as well as serve as facilitator to these two groups. The consultant is a neutral party who can stabilize the emotional forces within the family and bring the expertise of working with numerous families across many industries.
Compensation plays a part in setting a tone of formality and professionalism. Board compensation should be commensurate with the resources of the business and should be sufficient to send a message of seriousness.
Defined terms and term limits are a good idea
Many advisory boards are set up based on a verbal request from the owners to a prospective member. These are often open-ended requests. This can cause problems, especially if a board member is a long-time friend or associate and the owners are a bit queasy about dealing with conflict. Map out your expectations. From the outset, establish specific terms of office, and make your expectations clear. Advisory board roles should also have term limits, such as 12 or 24 months. It can be awkward and potentially damaging to your business’s reputation to kick out an advisor if he or she is not performing. Setting term limits allows the transition to happen naturally.
Successful boards have formal meeting agendas, published minutes, and generally follow accepted rules of order. The best boards have their practices documented in written bylaws. Agendas are prepared and published well in advance of the meeting, and are part of significant pre-meeting preparation by the owners.
Meetings are held quarterly. Board members receive the agenda in advance, along with recent financials, other metrics and information specific to topics which will be discussed at the meeting. All the meetings follow a similar agenda, but different key topics are covered depending on the time of year or current issues of importance to the business.
Stay in touch
Keep your advisory board members informed of your company’s activities between meetings. The fact that they’ve agreed to be on your board means that they care about the welfare of your business. If they are consistently up-to-date on the goings-on of your enterprise, they will be of greater value to you.
Maintain a professional edge
Remember that your advisors are neither employees nor suppliers, and they should not be treated as such. Advisors should in no way be held accountable for the decisions of the company nor for any fallout those decisions trigger. They are there to make suggestions and observations based on the quality information with which you provide them. It is up to you as the owner to make the decisions and to implement the plans.
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Prof. Soriano is the chairperson of the Marketing Cluster of the Ateneo Graduate School of Business. He is also a Senior Consultant of Wong+Bernstein Business Advisory Group. For comments, send email at [email protected]
