(2010 Excellence in Family Business Award winner Tom Kelly, owner of Neil Kelly Inc., values an outside board of directors to help him make informed strategic decisions for the company | Photo by Aaron Ziltener)
At some point, most family businesses find themselves pondering the question of implementing a board of directors, and for good reason; the experience, perspective and accountability that boards provide can form a platform for stability and growth. The words Board of Directors often evoke images of stately boardrooms and Wall Street trappings, but the reality is usually more pragmatic for family businesses, and boards rarely start out fully evolved.
Guidance for families on the common question of board development can be found in the Austin Family Business Program podcast episode, Advisory Boards for Family Business featuring Tom Kelly of Neil Kelly Inc. and Rich Simmonds of Simmonds and Associates, excerpted below.
An informal beginning
Two or three business associates or family members who meet occasionally to discuss business ideas and strategy is a common starting point for board development. While the group may have no formal decision making authority, it can act as a sounding board for ideas and a source of industry experience for fledgling family businesses.
Even relatively young family businesses may benefit from implementing an informal advisory group. Tom Kelly, owner and president of Neil Kelly Company, says that even if he started a brand new business tomorrow, it wouldn’t take him long to start putting together a board. “Having a group of people that I’m accountable to, smart business people that I respect who can help me avoid bad business decisions, is one of the greatest values of a board,” he says.
Moving toward structure
Families regularly hire experienced accountants and business attorneys to advise them on matters that affect business operations. Likewise, families should look at advisory boards as an opportunity to bring together experienced business associates who can help guide the enterprise at the strategic, long-term level.
This may mean moving from informal gatherings of a few associates or family members to regularly scheduled meetings, with set agendas and record keeping. These advisory boards are often comprised of family members, trusted associates and key employees. The addition of independent directors, who have no direct connection to the business or family, will bring a more objective viewpoint into the boardroom; their perspective as an “outsider” may allow them to ask questions and see strategic angles that could be overlooked by those enmeshed in day-to-day business operations.
Rich Simmonds, family business advisor with Simmonds and Associates, says that a more structured board can also help with succession planning; “for families who are looking at succession in the next five to 15 years, a board can help facilitate a smooth transition.”
Formal boards of directors
At the other end of the spectrum lie formal boards of directors with legal and fiduciary responsibilities for the company. Family businesses with multiple generations and minority shareholders may find the greatest benefit from a formal board, but this is rarely the starting point for board development. Rather it usually results from thoughtful board development done at earlier stages.
Resources
Listen: Advisory Boards for Family Business podcast episode, produced by the Austin Family Business Program. http://bit.ly/boardpodcast
Read: Building a Successful Family Business Board: A Guide for Leaders, Directors and Families by Jennifer Pendergast and John Ward. Published by Palgrave Macmillan.
