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An advisory board, sometimes also referred to as a board of advisors, is a small group of people that meet periodically during the course of a year to offer advice to a company. Members of a board of advisors do not usually have a share in the company, and unlike a board of directors they do not bear legal responsibilities for the company. Generally, small and family owned businesses use a board of advisors to get outside advice from someone that does not have any immediate involvement in running the organization.

Selection of advisory board members

Members of an advisory board are typically chosen based on reputation and expertise within a given field. While members of the family members and possible successors are sometimes invited to the meetings they typically should not be members of the board to eliminate potential family politics becoming involved in the business matters. While they may not hold the expertise of other members of the board they do typically have a trait or quality that is valued by the management. Advisory boards are great for small businesses that do not have a board of directors but do still seek the advice of others in making important decisions.

Advisory board compared to board of directors

Some organizations that do have boards of directors also form advisory boards in addition. While advisors do not hold the same responsibilities or authority to make decisions as members of the board of directors they can act as consultants on new projects and spot potential problems and make suggestions sometimes based on prior experiences.

There are some strengths to adding non-family business members to business boards. Family business owners have to ask themselves the question, “Who would want that job?” It is an important question to ask because this position requires a lot of time for little reward. There is also a transition period where an advisor not familiar with the industry would have to familiarize them. Family business owners should consider hiring non-family business advisors because they can make strong contributions to their business. A company’s top management should spend the time to find the non-family member that is interested and motivated to advise a family business.

One of the largest influences is that non-family member advisors would be hesitant to take the position because of fear of dealing with family issues that affect the business. This can be one of the main reasons because of the personal family challenges that can affect non-family members throughout the entire company. Usually, a board member would not want to be part of a personal family discussion. Most take the position because they are dedicated to the industry or company.

What can motivate an individual to take this position? There are a few areas of motivation that can be views as reasons that certain individuals would take the position. These are also areas that top management should look for when searching for an advisors. First, an individual must have respect for the family business. If one believes in the business itself and its contributions to the employees, the economy, and communities. Second, an individual sees the position as an opportunity to learn more. Most advisors enjoy working with others and learning as they experience. Third, individuals need to have an understanding that there is a chance to apply lessons they have learned in a new context. If an advisor has previous experience working with a family business, they would most likely make decisions based on what they have learned in the past. Lastly, an individual must be willing and eager to interact with other board members. The board is a set of individuals with different levels of experience. An outside board member will be much more willing to take the position if the board consists of experienced advisors.

There can be issues with advisors because of position and pay. Family businesses are usually not public companies so advisors do not usually publish membership. Therefore, an advisor’s membership may go unrecognized outside of the company. Also, family business boards do usually not pay as much as public business boards. Overall, family businesses do not typically pay the going rate for their directors’ time.

The key in finding a board member is to find the individual who has the motivation and experience to work on an advisory board. It is important to identify a potential individual’s interests with the family business. This can help the business’s top management with important decisions in the long run. Top management should look for those who appreciate and understand family businesses and want to become life-long partners. It is important for family businesses to always look ahead especially when they are searching to fill a board of advisors.


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Categories: Governance