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?

Business man giving a presentationMany family-owned businesses are organized as corporations to protect the owners from personal liability for business obligations. One consequence of organizing as a corporation is the legal separation of ownership and management. In order to secure protection from personal liability and to assure effective corporate governance, it is important for family-owned businesses to manage the inherent overlap that exists in their ownership and management. This blog post provides an overview of the different legal roles played by shareholders, directors and officers.


Stockholders are individuals or entities that hold an ownership interest in a corporation. The ownership interest is represented by shares of stock. An ownership interest does not, however, give a stockholder the right to control the day-to-day affairs of the corporation. Typically, the most important right that a stockholder has is the right to vote. Voting rights provide stockholders with limited control over the corporation’s affairs by allowing them to, for example, elect the individuals that will serve on the corporation’s board of directors and approve the corporation’s bylaws. Stockholders exercise their right to vote at annual meetings or special meetings that are called by the corporation. Stockholder’s voting rights are subject to the terms and conditions set forth in the corporation’s organizational documents (i.e., articles of incorporation and bylaws) and other agreements between some or all of the stockholders.


The board of directors of the corporation is made up of members who are elected or appointed by the stockholders. Membership on the board is not usually limited to stockholders or employees of the corporation. Directors govern the corporation on behalf of the stockholders and owe fiduciary duties to the stockholders and the corporation. The board of directors’ duties usually include hiring and dismissing the corporation’s officers, establishing and assessing the overall direction and strategy of the corporation, and approving annual budgets and corporate policies.


Officers are appointed and removed by the board of directors.  Officers manage the day-to-day affairs of the corporation and carry out the policies adopted by the board of directors. The structure of management varies widely between corporations.  In many instances a single individual may serve in multiple offices. For example, many boards of directors choose to have the top manager serve as both the president and CEO of the corporation.

With this background, it is important for family business owners to review the roles that various individuals are playing within the corporation.  Over time, as a business grows and develops, changes may begin to occur organically, and corporations must consider what corresponding legal formalities need to be observed to keep pace.