I recently met with my friend Matthew Whitaker, the owner of gkhouses, to learn more about the advisory board he established in 2017. With over 1,500 homes currently under management, gkhouses is a regional property management firm for single family homes and is the largest property management firm in Birmingham, with additional offices in Nashville, Chattanooga and Little Rock.

Frederic: Why did you decide to form an advisory board?

Matthew Whitaker from gkhousesMatthew: I was actually “advised” to form an advisory board (pun intended). In mid to late 2017, I was meeting with a number of people to discuss next steps for gkhouses and heard from multiple people who I respected that an advisory board would really help me. I thought it would make a lot of sense given I was taking so much time at these meetings getting people (advice givers) up to speed and that it would be much more efficient to find board members who already knew a lot about my business — or that I could at least teach them just one time.

 

Frederic: How did you select your advisory board members?

Matthew: I read a number of books on putting together a board. But in the end, I decided on people who I thought were a few steps ahead in doing what I’m trying to do – who all had different skillsets. I really wanted to cover the broad range of skills we needed to excel in order to be successful: IT, sales, finance, M&A, etc. I also wanted to pick people who made me a little nervous when I spoke to them so that it would force me to be prepared and to respect their advice when they gave it.  I don’t think it makes a lot of sense to have a board of people you don’t really respect.  There is a ton of effort that goes into having these meetings, and you need to extract as much value out of the time investment as possible.

 

Frederic: How often does your advisory board meet, and how do you conduct meetings?

Matthew: Our board meets on a quarterly basis for three hours. I try to make it as convenient as possible for the board members, so we do it late in the day on a weekday (typically 3:00 to 6:00 p.m.). I have snacks for them. We’ve also done one over lunch, which I think works very well. They have to eat.

I have a meeting schedule that I follow to run the meetings. There were some more traditional schedules out there (in the books I consulted). But I didn’t feel like a formal schedule was the right move for us. We follow an agenda very similar to the meetings we have here at the office. If you are familiar with the book Traction by Gino Wickman or the EOS (entrepreneurial operating system) model, then you will know the agenda. And it’s very important to me that we start on time and end on time.

I also send out a three-page update at least 48 hours before the meeting. It isn’t required reading for the meeting, but it gets their head in the right place when they show up. I even tell them what issues we are going to discuss. Some people need longer to process than others and giving them 48 hours to think about my problems usually gets some better advice.

 

Frederic: How has your advisory board added value to your business?

Matthew: I’m just getting started but feel like I’ve already received a ton of value. First, it forces me to zoom out and look at the business on a quarterly basis. Second, it forces me to simplify what we are doing, so that I can communicate clearly to them in the allotted time (a very healthy exercise). And last, I believe their advice has led to some pretty cool changes and ideas for future changes at gkhouses.

 

Frederic: What advice do you have for other business owners who may be considering an advisory board?

Matthew:  I was actually thinking about this the other day, and I came up with four things.

  1. Ask people who intimidate you a little bit. And be willing to take a “no” to get some great people.
  2. Be prepared. Don’t waste the advisory board members’ time. If you’ve asked the right people, you have busy people on your board who can see straight through you “faking” a meeting. One way to do this is writing down issues when you think about them between meetings.
  3. If the board gives you advice, either do it or explain to them why you didn’t do it at the next meeting. There is nothing that gets the board more excited than to see their ideas implemented or at least considered. We have a “to do” list that comes out of every meeting and going through those items is on our list of topics to review at the beginning of each meeting.
  4. Give them the reality. If you have the right people on the board, you have a tendency to want to impress them with how well the business is doing. I try to push the ego aside and tell them the unfiltered truth. No matter how good business is going, all of us have some serious issues that you need help solving. I think they actually appreciate it when you are transparent with them.

Advisory boardWhat is an advisory board?

Family-owned businesses often form advisory boards as a source of guidance. Advisory boards differ from the board of directors discussed in this prior blog post in several respects. Primarily, advisory boards guide, not govern, as they do not have legal decision-making authority. When a company is closely held, the owners of the company may select the members of an advisory board. Where ownership spans multiple generations, advisory board members may be selected by the company’s board of directors.

Why would I want one for my business?

The purpose of an advisory board is to expand the business’s circle of trust in order to gain a broader spectrum of knowledge and experience to guide the business. Many business owners view the advisory board as an opportunity to harness expertise that the business might otherwise lack. Unlike owners who serve as both executives and board members of the company, advisory board members are not focused on the day-to-day operations of the business. This distance enables them to provide an objective, strategic, and future-focused perspective in advising the business.

Advisory boards also provide family-owned businesses with a chance to hear an outsider’s perspective—a potential change of pace from the opinions of family members, long-time friends, and employees. Advisory boards can also serve as a neutral group to resolve certain issues, such as transitioning between generations and arbitrating familial disputes. An advisory board can also function as a bridge from a family board to a board with independent members. We will discuss this in more detail in a future blog.

Who should serve on an advisory board?

Successful advisory boards typically contain between three to seven members, although board size and composition should be tailored to the needs of the business and the family owners. Business owners can select individuals that have a preexisting relationship with the business, such as accountants, financial advisors, or lawyers. Family businesses may also choose other experts in the business’s industry and market. Owners should keep in mind the importance of garnering new opinions and perspectives when selecting members of the advisory board.

How do I form an advisory board?

While no formal documentation is legally required to implement an advisory board, we suggest that businesses define their relationship with the advisory board in a written agreement or policy. Some businesses may choose to adopt bylaws of the advisory board or even a charter. Regardless of form, these written documents will serve to memorialize the purpose, parameters and function of the advisory board. Additionally, the board of directors must approve the creation of the advisory board in accordance with the business’s governance documents.

Business MeetingThe prior Family Business Advocates blog post provided an overview of the different legal roles that shareholders, directors, and officers play in the intersection of ownership and management of a company, but how does a family-owned business manage the intersection of all three of those legal roles? Answer: The Board Chair (a/k/a Chairman, Chairwoman, Chairperson).

  1. What is a Board Chair?

Simply put, it’s the leader of the Board of Directors. The Board Chair sets the agenda for, and presides over, meetings of the Board. The Board Chair also acts as a link between the Board and the executive officers of the company. The bylaws of the company often determine the scope of the Board Chair’s duties and obligations.

  1. Is the Board Chair an officer, director, or shareholder?

A director, but maybe all three. As a director, the Board Chair has fiduciary duties to the shareholders of the company, but that does not mean the Board Chair cannot also be a shareholder (and often times in a family-owned business the Board Chair is a shareholder).  The bylaws may provide that the Board Chair is also an executive officer of the company; however, many argue that best corporate governance practices favor appointing a non-executive officer Board Chair in order to reduce potential conflicts of interest (among other reasons). It is also important to note that the role of the Board Chair may change over time. A company may start out with a dual CEO/Board Chair role but later bifurcate the role as the family business matures or for succession planning purposes.

  1. Who appoints the Board Chair?

The company’s bylaws govern the appointment or election of a Board Chair. Typically, the Board Chair is elected by the other directors, but a family-owned business may develop its own unique process for selecting the Board Chair. For example, the position may rotate among different branches of the family tree, allowing a subset of the directors to select the Board Chair for a specified period of time.

  1. Why does a family-owned business need a Board Chair?

Every business with a Board of Directors needs a leader of the Board, but the role of the Board Chair is particularly important in a family-owned business. In a family-owned business, the Board Chair often acts as the voice of the family in interactions with the CEO.

  1. What qualities should a family-owned business look for in a Board Chair?

In addition to knowing the company’s business objectives, the Board Chair for a family-owned business needs to understand the family and its goals, challenges, and maybe most importantly, politics. There is no one-size-fits-all approach to selecting an appropriate Board Chair, but here are a few qualities to consider:

  • Familiarity with the company’s goals and strategies
  • Sound judgement
  • Experience and leadership maturity
  • Interpersonal skills
  • Organizational skills
  • Accountability
  • Reputation in the community
  • Relationships with others
  • Forward-looking vision
  • Time and desire to take on the role

We want to hear what you think. What additional qualities would you add to this list?