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Keep It Together

Prevent your board members from jumping ship.
October 1, 1999
URL: http://www.entrepreneur.com/article/18392

Outside boards of advisors can give family businesses a real competitive advantage. "They bring independence and objectivity to the business that family members can't," says James Hutcheson, founder and president of ReGENERATION Partners, a family business consulting firm in Dallas. "Because relatives share similar experiences, they usually don't bring differing perspectives to the business." Outside board members do. They can infuse the family firm with a fresh perspective and new areas of expertise.

Despite their potentially powerful value, many advisory boards fizzle or their members part company. Or they fail to make any meaningful contributions to the family business. Why? Here are some common reasons:

"To determine who should sit on your board, ask `What's the company's weakest point?' or `What strengths do I need to bolster?' " suggests family business advisor Kent Graham, a partner with Los Angeles law firm O'Melveny & Myers. "Once you know what you need, you can seek people who fit the bill."

Of course, a company's needs change, making it important for family businesses to alter their board's makeup. "Being an advisory board member isn't a lifetime role," says Hutcheson. "A wise family business leader sets term limits--even though the terms could be renewed."

Ilana Diamond, 40, president of Sima Products Corp., a second-generation manufacturer of consumer electronics accessories in Oakmont, Pennsylvania, is comfortable with that idea. She credits her advisory board with pushing her company. "One member suggested we look at ways to reduce our bank credit line. It was an obvious way to increase profits, but we were spending so much time on the daily issues that we overlooked it. Once we focused on it, we significantly decreased the amount of interest we paid," Diamond says.

"Later this same board member asked what I was going to do with my time now that things were going so well. `You should get out of the office more and start thinking about the next steps for the company,' he suggested. He was right," Diamond admits. "That's when I started focusing on e-commerce--our next growth sector."

It's not necessary or even wise to wait until a scheduled meeting to discuss problems or issues with advisory board members. "If something comes up, such as a lawsuit," Hutcheson says, "you'll want to get on the phone or have lunch with your members and tell them about it. You might be able to get some invaluable advice from someone who has experienced something similar."

Both Graham and Hutcheson agree, however, that compensation goes beyond financial remuneration. "Outside board members' compensation expectations are different from those of paid advisors," says Graham. "They are flattered by being thought of as a valuable asset. They like the opportunity to network with other knowledgeable people. And they often feel they are learning something from the experience."


Patricia Schiff Estess writes family business histories and is the author of two books: Managing Alternative Work Arrangements (Crisp Publishing) and Money Advice for Your Successful Remarriage (Betterway Press).

Contact Sources

O'Melveny & Myers, (310) 246-6820, kgraham@omm.com

ReGENERATION Partners, (800) 406-1112, http://www.regeneration-partners.com

Sima Products Corp., (800) 345-7462, http://www.simacorp.com