The University of Louisville has the following on the web site:
Family Business Facts
• Family businesses comprise 80 to 90 percent of all business enterprises in North America (Family Business Review, Summer 1996)
• Only 40% of family owned businesses survive to the second generation, 12% to the third, and 3% to the fourth (Boston Globe, May 4, 2003)
• Family owned businesses account for 60% of total U.S. employment, 78% of all new jobs, and 65% of wages paid (Financial Planning, Nov 1999)
• By 2050, virtually all closely held and family owned businesses will lose their primary owner to death or retirement. Approximately $10.4 trillion of net worth will be transferred by the year 2040, with $4.8 trillion in the next 20 years (Robert Avery, Cornell University, “The Ten Trillion Dollar Question: A Philanthropic Game plan”)
As the Family Business migrates from entrepreneurial to managerial to professional, some Family Leaders may want to have a Board of Directors, other may already have a group with this title but not really the legal function. “A Board of Directors has a legal requirement and has fiduciary duties to the shareholders of the corporation. It is the board of directors’ obligation to oversee management, to make sure that management develops strategic plans, executes them and delivers value to the shareholders. A board of advisors, on the other hand, is not a requirement.
A board of advisors has no legal responsibility or fiduciary duties to the shareholders. The purpose of having a board of advisors is to add a layer of diverse expertise above management that can offer support, advice and assistance without the corresponding responsibilities and fiduciary duties of directors. Both boards must be actively managed in order to maximize their usefulness.”
When you consider updating the Family Organization you may want to consider a Board of Strategic Advisors. A few points to consider is the purpose – what you do not want and the rules of engagement, i.e. job description, term, security and compensation. Some Advisors boards are wanted by start-ups for their diverse expertise. If your business already has a Board in name only, often this is a token place for former executives.
An additional point in the plan must be how to exit this group, thanking them as they depart. It is critical to communicate the intent of this group; focus on growth, innovation and new products. It is vital to the success and integrity that the possibility of equity is explained upfront. Whether it’s offered or not is a Family leadership issue-but be clear. Depending on the maturity of the business you may or may not want anyone “experts’ from within the specific industry.
In the case of an existing Family Business you may want more focus on culture, customer and passing the business to the next generation. The alignment of the advisors to the Family’s visions maybe the single most critical factor.
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tzu
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