Perspectives from ISB

Family businesses use advisory boards as a means for the family to go beyond its inner circle and tap into more diverse experience and expertise. While many family businesses have advisory boards, most of them are not very helpful. It appears that this is a function of implementation as opposed to concept.

A recent survey of 336 middle-market family businesses showed that about three out of five of them had advisory boards. They were more pronounced among the US based family businesses than the non-US based ones.

However of the family businesses with advisory boards, only about a third of them reported that the advisory boards were beneficial to the family and/or the company. For the family member questioning the usefulness of their advisor boards, almost four out of five of them report that the people on the advisory board are substandard choices and that a number of them are simply exploiting their relationships with select family members.

Hence one of the most critical actions to make an advisory board useful is the selection of its members. Of the 64 senior executive family members reporting that their advisory boards to be very useful, nearly nine out of ten attribute the effectiveness of the board to the time and effort exerted in choosing its members. The other principal factor said to contribute to a successful advisory board is that there is a formal structure – meeting agendas, minutes, assignments, and reasonable compensation.