From Advice to Accountability in Family and Private Business
Rising out of an increased awareness of the value that external perspective can bring to a business through the creation of an Advisory Board, another phenomenon is beginning to gain increased traction in Family and Private businesses. The maturing of the Advisory Board into a Governing Board.
An Advisory Board creates a platform for insight, perspective and more robust discussion around decisions. There is no doubt that the benefits of bringing together around the table trusted and informed advisors adds value to a business’ management. The inclusion of the accountant is almost standard and extending into financial planners, lawyers and industry advisors (including customers) are signs of a more mature approach.
Where the shift to a Governing Board begins is when the critical element of ‘accountability’ is applied to the business. No longer providing ‘Advice’, the Governing board is providing ‘Direction’ and thus it should be composed of ‘Directors’. Naturally not all firms and structures have formal Boards (where the Directors are recorded with ASIC), but the duties and responsibilities are the same. A Governing Board holds the business and its management to account. Accountability is what drives performance. We only need look back to our school day assignments to know that the deadline drove the effort.
Can the traditional members of an Advisory Board be part of the Governing Board? This is the key question often asked by businesses when they are seeking the next step in their maturity.
Duncan Schultz, Founder of AMPLIFi Governance, a specialist Family and Private Governance firm, believes that there is certainly a role to be played by the traditional advisors to the business in a Governing or Formal Board. “The traditional advisors to a business must contribute at the Governing Board level. Their input, role and contribution will be the same. The difference is that they will be ‘Officers’ of that Board, not Directors. The Directors are the people who then make the final decision on that advice. They are the collective that also importantly holds the business to account”, Mr Schultz said.
“An accountant who is billing the firm for professional services can’t be truly independent”, Mr Schultz continued. “An independent director is the real key to driving performance. Someone who isn’t afraid to push a point or hold executive management’s feet to the fire.”
Once you mature from an Advisory Board to a Governing or Formal Board, you start to put in place the platform for succession, stability and a long-term cultural change. Personality based leadership of the business is replaced by a good governance culture. The Directors and Officers will change over time, but a functioning Governing Board will endure. The key economic value (read bottom line) of moving to a Governing Board becomes evident in the performance of the entire organisation that an independent Governing Board brings through accountability. Longer term, the value of the business will increase as it is no longer dependent on personality leadership, but has an enduring platform for succession. The directors and shareholders may change, but the Board and its culture will endure.
AMPLIFi Governance is a specialist governance firm that drives performance, accountability, sustainability and innovation in family and private business by creating a boardroom culture through carefully selected independent directors that match the business.