Are Family Business Advisory Boards Worthwhile?

Are Family Business Advisory Boards Worthwhile?

Family businesses use advisory boards as a means for the family to go beyond its inner circle and tap into more diverse experience and expertise. In a survey of 336 middle-market family businesses, about three out of five of them had advisory boards. They were more pronounced among the US based family businesses than the non-US based ones.
Of the family businesses with advisory boards, according to the senior executive family member participating in the research, only about a third of them reported that the advisory boards were beneficial to the family and/or the company. The two principal explanations for these results are that advisory boards are not effectual or – more likely – the advisory firms at many of these family businesses are viable.
One of the most critical actions to make an advisory board useful is the selection of its members. According to Daniel Geltrude, Managing Partner of Geltrude & Company and Director of the firm’s Family Office Practice , “Advisory board members should possess a number of critical qualities in order for everyone involved to benefit. They should bring particular expertise and insights to the business. Integrity and a willingness to be objective and open are also crucial. The family business is well served if the knowledge, skills, and connections of the people on the advisory board complement those of the family.”
For the family member questioning the usefulness of their advisor boards, almost four out of five of them report that the people on the advisory board.are substandard choices and that a number of them are simply exploiting their relationships with select family members. “When the wrong people are on the advisory board the result is usually bad chemistry and bad decisions. Often friends and other family members are chosen for personal or political reasons. Because of bad choices, full and open dialog is often obstructed. The poor selection of advisory board participants generally ensures the advice the board will provide is mediocre at best,” says Pat Rufolo, founding member of Rufolo & Associates a nationally recognized estate planning law firm.
Of the 64 senior executive family members reporting that their advisory boards have be very useful, nearly nine out of ten attribute the effectiveness of the board to the time and effort exerted in choosing its members. The other principal factor said to contribute to a successful advisory board is that there is a formal structure – meeting agendas, minutes, assignments, and reasonable compensation.
While many family businesses have advisory boards, most of them are not very helpful. It appears that this is a function of implementation as opposed to concept. Having the right people on the advisory board coupled with a formal structure is probably a good way to enhance the success of the family business.
Coined from Forbes >>