How Independent Advisors & Board Members Can Benefit Family Businesses

BY: Jordon Geiger


During times of transition or growth, businesses often rely on the board of directors for expert guidance and a fresh perspective. This can be especially important for a family business, which may have to deal with the added challenge of managing family relationships – whether strong or strained.

If your family business's board of directors is filled with family members or long-time family friends, it can sometimes be difficult to have a robust and fully honest discussion of ideas, strategies, and challenges without concern for those relationships.

Further, if your family business is considering an exciting growth opportunity or is on the verge of a major transition, like passing the torch from one generation to the next, you may want to consider tapping into an objective outsider, such as an independent advisor or a new (non-relative) member for your board of directors.

Reasons to Consider Adding an Independent Voice

In the strange business environment of 2020, many family business owners chose to look harder at retirement, requiring a more detailed and in-depth examination of options for future leadership.

Emotions can run high, and unforeseen issues often arise, during this process. This may be especially true if the transfer of ownership offers multiple scenarios and remains unclear. For example:

  • Perhaps your business has outgrown its current organizational structure.
  • Communication among family members could be inconsistent or insufficient, particularly if roles and responsibilities are ill-defined.
  • Younger family members may be reticent to disagree with their elders or may struggle with their dual role as an employee and a family member.
  • You may have multiple options in the next generation who would like the top leadership role.
If your family’s business is transitioning roles from one generation to the next, an independent advisor may help provide a smoother transition process and some specific expertise regarding future operations of the company. An independent, objective advisor without close ties to the family can help make the tough decisions necessary to move the business forward.

In addition, an outside advisor or business coach could be an invaluable development tool for a younger family member being groomed for future leadership or who recently took on more responsibility. The business coach can help an emerging leader find their own management style and serve as a “safe place” for him or her to flesh out new ideas before making changes.

The Role of an Independent Advisor or Board Member

Advisory boards are often created when control of a family business transitions from the first to the second generation. The addition of independent advisors or non-family board members is more likely to happen when the third generation or ownership group takes the helm. At that point, it tends to become more obvious that a board consisting of only family members no longer serves the best interest of the business or the family itself.

Independent directors can enhance a family business board of directors in a variety of ways, including:

  • Providing expertise in a range of subject matter areas, such as help in developing communication skills, leadership, or learning opportunities.
  • Helping owners adapt to changing circumstances in the market, industry, or even within the family.
  • Assisting with making decisions that are difficult for the family to handle alone. In particular, they offer an objective viewpoint that is not shaded by emotional issues.
  • Offering experience that gives non-confrontational alternative perspectives outside the current scope of your leadership style or organizational structure.
  • Creating accountability for founding owners and successors to focus on timely decision-making and ensure the business evolves as necessary to meet new realities. This can help make the business more credit-worthy and sellable, should the need or interest arise.
  • Adding or expanding diverse viewpoints within your organization.
Adding independent advisors to your board of directors represents an important milestone for your family business and may require a period of adjustment for everyone involved. However, families who take this step will likely benefit from the wisdom and expertise that an outside perspective can offer in helping their business reach the next level.

If you would like to discuss ways State Bank of Cross Plains can help you with succession planning or diversifying your network of outside advisors, contact please contact me (608) 826-3561 or visit our website.
Author:

Jordon Geiger

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