Being the owner-manager of a small or medium-sized family business you are probably facing many challenges. These challenges relate to the business, for example changes within the market, pressures to present and sell your products or services online, or managing the relationships with important stakeholders such as the employees, suppliers but also the bank. But the challenges can also relate to the family or to you as an individual. Succession in management and/or ownership might be on the program in the next 5 to 10 years. Or unfortunate issues might play a role such as illness or a divorce.
The owner-manager needs to make the final decision in dealing with such challenges, and often feels left on his or her own. It’s often lonely at the top. The higher you get in the organization, the lesser the number of people available to provide good feedback. So why not start looking for advice outside your organization? One option to organize this kind of feedback is via an advisory board. Advisory boards are informal governance mechanisms, which means that they do not have legal standing (so the advice is not binding) and therefore are formally not allowed to participate in strategic decision making. Because of the informal status of the advisory board, the decision making power remains in the hands of the owners. Also, the advisory board can easily be dissolved if it is not working as expected. It is therefore a ‘safe’ way to involve outsiders in the business, people you can learn from and whose expertise is needed in dealing with the strategic challenges. A study on the use of advisory boards by SMEs in Canada, by the business development bank of Canada (BDC), shows that whereas only 6% of the firms that participated in the study had an advisory board, those that do are very happy with it, with 86% of the respondents indicating that the advisory board has had a significant impact on the success of their business. Areas of impact most cited are company vision, innovation, risk management, and profitability. Another study performed by KPMG in the Netherlands, specifically focusing on family businesses, shows similar results.
There are at least three aspects to carefully consider to make sure that the advisory board will work for you:
- Make sure that you are really open to the feedback. You will get most out of the advisory board if you are willing to truly listen to feedback from outsiders. Let me share a short anecdote with you. In return for my presence as a researcher during advisory board meetings I provided a detailed report of the discussions. At one of the first meetings, tensions arose when the detailed (as much literally as possible) notes of the meeting before contained critical comments on the activities performed by the directors of the firm. The directors started the follow-up meeting by saying that they felt that the minutes did not adequately represent what was discussed, and they questioned the detailed character of the minutes. However, the members of the advisory board reacted as one by arguing that they felt the minutes reflected the character of the discussion of the last meeting really well. They had been quite critical indeed of the activities performed. The directors then said that they felt the need to react to the feedback and give more background information on why and how they had acted and performed the way they did. They then agreed to continue using the detailed minutes of the meeting. This example shows that it is not easy to receive critical comments when you are not used to it. However, when you try to approach this process of receiving feedback as a learning opportunity and not get your emotions involved too much, the advisory board can also function as some kind of a personal development tool on the side.
- Make sure that you give follow-up to the feedback. You can imagine that it is quite easy to make great plans during the advisory board meeting, but once this strategic episode is over and you go back to work, the plans and good intentions get easily lost in the hectic of daily business. So it is important to close the meeting with an action plan in which activities for the coming months are defined and responsibilities for execution are assigned to the individuals. On the other hand, it is also legitimate to decide that you do not follow the advice. However, when that happens, you should provide good arguments why you do not follow the advice. Moreover, the discussion of the advisory board should ideally be continued in other strategic arenas such as the management team meetings, shareholders meetings and family meetings. These discussions don’t need to be formal ones, it can just as easily be informal talks to make other actors within and around the family business aware of the ambitions of the business and the role of the advisory board in that. One should not forget that the advisory board potentially has considerable consequences for the way things are organized in the business, for example by an analysis of the organizational structure, a critical evaluation of the performance of key activities, and an assessment if the firm has the right people in place. So it is important to share information and make people aware of the existence and role of the advisory board in the business. So irrespective of the choice you make in how you follow-up, you need to keep a close watch on what happens with the advice after the meeting and so that it does not vanish into thin air.
- Evaluate and improve. If you want a well performing advisory board you need to think carefully about the task that you give to the advisory board or the questions that you would like to address during the meetings. Also, you need to think about the expertise and networks needed and select the right people accordingly. And then the service does not come for free of course. You invest a lot of time and money in it, so make sure that it is worth the effort. Maybe the interaction between the actors involved is not dynamic, energetic or positive. Or maybe you need expertise for the next phase of the family business that the current advisory members are not able to provide. So evaluate the advisory board from time to time and discuss the potential for improvement for example by finding new members.
Seeking feedback from others helps you to discuss the strategic issues of the family business and to take better informed decisions. But an advisory board, with members that you work with over longer periods of time, who are well informed about the family business and the current issues, and who you trust, is worth considering if you want to grow your firm.
Judith van Helvert-Beugels
Lecturer in family business management at Windesheim University of Applied Sciences in the Netherlands. Her PhD project at the Center for Family Entrepreneurship and Ownership (CeFEO) focuses on the role of advisory boards in strategy in Dutch medium-sized family businesses .