Business advisory boards - the role in the family business
Is opening the family board or establishing an advisory panel to non-family members going to improve your performance? Yes – definitely!
In any family enterprise, commercial, manufacturing or agribusiness, you should take the position that you are custodians for future generations. Good governance, policies and planning is about building wealth in the long term.
Why it makes sense:
Only forty percent of all family owned entities in Australia have a formal family advisory board. Recent research from KPMG and Family Business Australia, involving 570 family companies in Australia found that many founders of family-owned enterprises resist forming a board with non-family members and do not realise the benefits they are missing out on.
In the commercial, manufacturing and agribusiness sector. The business environment we operate in today is changing rapidly and we cannot assume that past knowledge will be relevant in 2018/2019 and beyond. Family entities must look and plan beyond the near future as families last for generations. Consequently, planning needs to be long term. Whereas large corporations are measured on short term criteria and key employees are managing to meet this year’s budget numbers or a fluctuating share price with target to earn a bonus. They operate in silos and cannot avoid politics and turf wars.
In addition, family enterprises are facing competition in all segments, from ownership shifts where the big are getting bigger, overseas companies are buying into Australian business and the balance of power is skewed.
Many successful family-owned enterprises are multi-generational and this is especially so in the food and fibre sector. In a family enterprise where you have a generation gap you have different levels of knowledge, skill, business acumen, a diverse range of emotions and different individual aspirations.
In family enterprise there is always a blurring of the family and business dynamics. Everyone is too close to the issues to be able to make informed decisions and family outcomes and business outcomes are often different and difficult to separate.
This is a valid reason for implementing an advisory panel or advisory committee. We do not like to call them advisory boards, given the onerous obligations and responsibilities applicable to being a formal director under the Corporations Act 2001. Advisory panels are set up to advise only, to assist with decision making and to be a key resource with specialist skills missing within the family leadership group. They are there to ask the right questions, challenge family strategic direction and offer alternative options for consideration.
An effective advisory panel includes one or more non-family members who can add value, challenge your assumptions and bring wide industry experience to the table. An official board of directors has real legal requirements and fiduciary duties to ensure they are compliant with the Act. An advisory panel has no legal status or liability, it is there only to provide advice and offer suggestions.
In business today, the burden of red tape and compliance are costing time and money as the regulations are too numerous for the typical family business to understand. This is a risk as ignorance of any breach of regulations carries financial penalties. Ignorance by a director is not accepted as an excuse in a court of law.
The skills and knowledge you need in your business in 2018/2019 cover such issues as workplace relations, workplace safety, financial understanding and competency, governance, compliance, risk management, legal, conflict resolution and succession/ transition planning. By establishing an advisory panel you can harness the knowledge, experience and wisdom around the table to meet on a regular basis to monitor and advise where applicable.
At a series of breakfasts seminars I facilitated, attended by some two hundred family business owners in regional Victoria, it was demonstrated that the four key issues you must address in your family business are 1. establishing an advisory panel 2. having a succession and transition plan for the next generation 3. developing a meaningful business plan with a clear and concise vision of the future and 4. a buy and sell agreement between family members and stakeholders.
In my own experience of working with many family business owners, I hear people say ”they do not want outsiders telling them how to run their business”. They ask “ how can someone not brought up in our business understand our business?”. One key issue I have to overcome is the reluctance of a family business owner to share the business financial information. If you think like this then an advisory board will never be able to add value to your family or business. I have experienced all situations in family business, nothing shocks or surprises me.
In an article published in the Australian Institute of Company Directors magazine a while ago by Tony Featherstone he stated his ten challenges for family company leaders.
1. The line between family and business is often blurred leading to disputes.
2. In-laws and extended family can add another layer of complexity.
3. Meeting can be too informal. The kitchen table decisions can be a problem.
4. Companies owned by different families can find it hard to achieve a shared vision.
5. Family companies may not always know what they want.
6. Succession and transition to the next generation can be a huge issue.
7. Some founders of family companies resent advice from outsiders.
8. Baby boomers typically have a higher need for control and won’t let go.
9. Some business owners struggle with more formal systems and structures that boards bring.
10. Some are reluctant to remunerate external board /panel members adequately.
My experience working with family boards and directors shows that an advisory panel will provide knowledgeable, clear and sometimes alternate thinking, reinforces and adds to the skills around the table. You need them to ask the difficult questions when required. Panel members are not bound by industry specific thinking and are not influenced by internal family issues and emotions.
Bill Winter FIM&L M: 0411536424
PO Box 7010 Geelong West 3218
Bill Winter is a renowned family and small business advisor and facilitator of the hard to have family succession conversations.