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Survival of the Family Business
It's All About
Objectivity and Advisory Boards can Help
The strengths
of a family business are also its weaknesses. If those weaknesses are
managed well and turned into advantages, the business may survive and
prosper - perhaps even to the second generation (a feat that is achieved
by only 30 percent of family businesses).
Working in a family firm can have distinct advantages. Key members of
the business may share strong bonds and values. Working in the firm may
offer them a kind of personal fulfillment that they couldn’t find
elsewhere.
The family patriarch and CEO may be much more likely to show concern and
consideration than a CEO who shares no family ties. And business
decisions are more likely to take personal and lifestyle considerations
into account.
That’s assuming that the family is a positive and model family, of
course. It assumes the business is run along the lines of The Brady
Bunch and not The Addams Family.
However, the benefits of working in a family business are largely
subjective, while business survival tends to depend more on objective
factors.
The market will make its judgment on a business with
only passing concern for whether it provides a personally rewarding work
environment.
The key to ensuring family
business survival is to make sure that the subjective side of the
business does not get in the way of objective side. One way to do this
is to appoint an independent advisory board. Advisory boards in small
firms typically function as a substitute board of directors.
Independent advisory boards, also called quasi-boards, are usually
thought of in the context of big businesses. In fact, fewer than twenty
percent of smaller firms have advisory boards, but they are worth
considering. They may provide a source of industry-specific expertise
that can supplement professional advice from other areas.
A SME might be able to attract advisory board members with useful
expertise, perhaps relying on the networking ability and charm of the
CEO.
An independent advisory board should consist of non-family members who
have various kinds of relevant business expertise and who can offer
objective advice on business strategy. The board can provide feedback on
new business ideas and can provide counseling and consulting support on
technical and industry issues.
Experts suggest that the advisory board consist of no more than a half
dozen outsiders. As the board is advisory rather than official,
accountants, bankers and attorneys can be very useful. A formally
constituted board should not include these professionals, because of
possible conflicts of interest.
It is also important to ensure accountants, bankers and attorneys on the
advisory board are not paid a fee for their services, as this helps
clarify the non-existence of liability for these professionals.
The advisory board might provide advice on the company’s strategic
direction, new business development opportunities and initiatives,
capital and budgetary issues, progress against financial targets and
requirements to upgrade technology or information systems.
It can offer a fresh perspective on the company structure. While family
members may see each other principally as ‘father’, ‘aunt’ or ‘son’, the
board can serve as a reminder that job roles have to be kept clear.
The advisory board can serve as an alarm system when personal and family
issues threaten the viability of the company. It may politely remind the
CEO, for example, that he is due to retire in five years, that plans for
his succession are not finalized, and that the company could be exposed
to litigation and tax losses in the event of his sudden departure or
death.
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