Governance Bites #139: advisory boards for family businesses, with Sandy Kimpton

In this episode of Governance Bites, Mark Banicevich sits down with family governance expert Sandy Kimpton to discuss a crucial topic: what is true intergenerational success?
Discover why family governance is about more than just wealth management; it's about developing human capital and preserving your family’s legacy and values. Sandy explains the power of "operating with intentionality", providing practical steps to align family and business. Learn how a long-term family perspective differs from short-term business thinking  and why an independent voice on a family council is essential.
Website: https://kimptonandco.co/
In this insightful episode of Governance Bites, our host Mark Banicevich sits down with family business expert Sandy Kimpton to unpack the strategic power of advisory boards. Discover how an advisory board differs from a formal board of directors and why it might be the perfect governance solution for your family-owned enterprise.
Sandy explains how this structure provides expert advice and objective, long-term perspective without the family relinquishing control. Learn how to balance business goals with family dynamics and make decisions that secure the best future for both.
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Transcript

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Hi, I'm Sandy Kimpton and I'm looking forward to chatting with Mark today on advisory boards for family businesses. I currently sit on a number of these boards and some of them are quite different from each other. And so it's an interesting topic and we look forward to chatting today. Hi, welcome to Governance Bites. My name's Mark Banicevich and as you just heard, once again, I have the pleasure of spending time with Sandy Kimpton. Sandy, thank you very much again for your time. You have a wealth of experience in dealing with family councils, family businesses, family organisations and helping them establish the right settings and succeed. You're also involved with Faraday, who are very much a business around advisory boards. So today's topic is around bringing those two things together, family businesses and advisory boards. To start with, what is an advisory board and how does it differ from a formal board of directors? So, flipping the question on its head, a formal board of directors has a quite established set of expectations under the Companies Act [1993] of New Zealand. I am a chartered member of the IoD [Institute of Directors], and you know we often talk about being insight, oversight, that ability to, you know, but you are making decisions at that higher level of governance. We're very much charged with the best interests of the company at heart. But at a core statement I would say it's about decision-making and conformance, compliance. Then moving on to an advisory board, there is slightly less legal obligation in that you're not a registered director for this company. It's often structured quite differently. The Faraday advisory boards often have just a, their structure works primarily with a chair, and then you're bringing in individual external advisors based on what the situation in need is. So, but it is fundamentally, at its core, more about what are we doing, how are we performance related. So it's quite strategic, it's problem solving and performance orientated. Right, so if we're talking a company, the formal governance board is the directors who are listed on the company's register. If you had a large, well-established business with a formal board of directors, chances are it'll have some independent directors, hopefully a majority, if best practices is to suggest that way. An advisory board is generally where you've got a, can still be a relatively large business. You'll have at least one or two formal directors from the Companies Office, but as you say, then advisors coming to the board that are not registered, so they're more acting in an advisory capacity. We're talking here, now, about a family business that may be established in any industry, grown quite large, it may be turning over $50, $100 million. It may have two or three directors who may be the founders. At that point, where they're reaching this, maybe come to the scale up, they're maybe getting to maturity and they're thinking, you know, we may need some governance support, or at some point along this journey, they're saying, we need some governance help. Why might they decide an advisory board as the way to go? Gosh, there was a lot in that, Mark. It was a long question, wasn't it? It was, it was. So I guess I'll shorten the question by saying, we have a business that has been around for a little while, it is reaching a point in its life cycle where it thinks, we need some governance help. Why would they consider an advisory board rather than a more formal board of directors? Okay, I'm going to actually start by equally answering in a convoluted way. And the first is that there can even be situations where you have a formal board and an advisory board. Okay. Because there can be situations where there's a formal board and you go, but we have a problem, or we have a situation, and an advisory board is set up to look at that. So just FYI [for your information]. Not completely dissimilar to a board committee, but a little bit different, actually. So, some similarities. So, now coming to your specific question, when would a family look at an advisory board? Well, the thing is that when you're running a business, you generally are running, you know, you're getting advice by your accountant or your lawyer once it's reached a certain stage. Are you, how often are you truly getting that ability to sit back and go, let me just look objectively at my business? What are the five-year, ten-year plans for this business? When am I really looking at it with sort of a lens of commercial acumen? Yes. And that's the piece where you really get some value out of an advisory board. Of others who are not quite so close to it as you. If it's in the family, it's very close, you live, breathe and sleep it. Somebody who goes, "Yes, but let's just not chat"and let's check the felt beliefs." So a felt belief is, "I'm sure we're doing this the"right way, the best way. We're not doing this. Red is better than yellow, so we only ever"have red ones." Have you ever checked? What do the market stats really say? So that's where an advisory board brings real value. Where you're actually just sanity checking, anchor, bringing more thought into the conversation and the long-term decisions. And for a family business in particular, well, I guess as an example, not in particular, but for a family business, you're bringing in the expertise of advice without relinquishing any control, aren't you? Absolutely. Right. And you bring that layer of independence. Yes, yes. What unique value can an advisory board bring to family businesses that other structures can't bring in? There is probably too many businesses that the conversation of what to next or where to doesn't happen, for a start. So doing nothing is a decision, but it's not necessarily a great decision. You can chat with; the role of advisory boards has really grown up because people realised it would be useful to have some expert advice. You can chat independently with those people around you and even others in the industry. But the value of having an advisory board is that everyone's hearing the same thing or bringing different thought to the table and together you're making a decision, or helping guide a decision, or helping the owner formulate a decision, with all of that coming together. I've seen situations where an owner has run around and got all of this different advice that's actually just been felt completely overwhelming as everyone slightly contradicted each other. So that ability of everyone being in the room together and being, having open-minded individuals who, I know I do it, where you can read a set of board papers, you go along to the meeting with a view on how that conversation's going to go. But as you hear the others around the room, you go, "Hmm, okay." Yes, you mould your thinking based on the input of others. Correct. And that's the value an advisory board brings, versus a bit more ad hoc, do it yourself approach. Your specialty is dealing with families, family councils, family boards. How do, or how can advisory boards help families balance those business goals, business needs with family dynamics? Family dynamics and family needs, I would say, because when you have, when you, I would, for a family business, I would say that you always want to have a person on your advisory board that has experience in multi-generational families to some level. So that ability to ensure that, when you're, very simple example, you're looking at the financial performance, as every director, whether an advisory board or a formal board, you're expecting to have a view of the solvency, in the cash position of the company. But when you're looking at it and you're seeing,"Gosh, that's quite a high rent." But when you know it's part of the family asset pool, it's absolutely okay, right. Yes. So who the heck cares? So there's a very simple example of where there is, you know, having that family background is useful. So you have somebody on those boards. I don't think that answered your question. It was an interesting answer, though. The question was around how advisory boards can help the families balance their business goals with their family dynamics. It was a good example related to it. It was actually a good, it was an example related. Because when you are working through, an advisory board really has that ability to go, or I think it should have that ability to go, remember this business is more than just the business, there is a family here and what are the long-term family expectations for the business? And so if I refer to that example, if there is a piece where let's have it as a cash generator to enable our kids to go do X, Y and Z, That's one outcome, right. If it is, but equally, our kids don't want to do this, so let's have the cash coming out, but let's transfer some of the value into some more passive income streams, then that equally can play into the equation. And so you can be working with the founders in a way, or the owners in a way that the best outcome for the business is also the best outcome for the family. That actually leads well to the next question around establishing the mix of an advisory board. How do you decide how many people on the advisory board are family members, how many of them are independents, or what that mix should be? It's always going to depend a little on the circumstances in the family, but an advisory boards are typically smaller than formal governance boards. And they're often a little fluid, where then you might bring somebody in for a specific aspect because they bring the right skill set. Right. But as a general rule I often would counsel families to have a couple of sets of eyes across the family business. So it's a way of putting the fact that's not just down to one family member, but there is other family. And I would also suggest that there's value in having an intern from the family. Right, training the next generation. Training the next generation. Now, so if I mentioned both of those, an example of the first one not happening was the Vanderbilt family in the US [United States]. Now, there were, in this particular generation, there were a bunch of kids, predominantly sons, one had been, the other sons had sort of said, he seems to have to know something about the business. I'm just paraphrasing a long story. He can be in charge of just keeping an eye on the portfolio. Unfortunately he died on the [RMS] Lusitania when it was bombed going into Ireland in 1941 [correction, 1915]. Nobody else had the faintest idea of what was going on in an entire portfolio. Wow. Right. So that's some logic behind having a couple of sets of family eyes, and that sense of, and from just a normalised New Zealand example, when you're keeping those family dynamics together, there's no, it reduces the, "Well, he screwed our family business," you know, conversation. So, there's that. The second piece around those interns, gosh, if the, I was at a great conference the other morning, actually a little plug for Tompkins Wake. They did a great boardroom series. I looked across and I saw there was about, I'd say, about a 17 or an 18 year-old in the room. It was a great session. I thought, absolutely, I should have had a couple of the families I work with their kids in here. The longer those kids have of sitting beside mum and dad. Yeah, the more experience they get when it comes their turn. Yeah. Absolutely. What role should the chair play in an advisory board as compared to the chair of a formal board? How does it differ? Well, the chair role is quite specific, right. Because you are not the one doing too much talking. You're hopefully doing the one who is corralling the conversation, and knowing how to summarise it, and bring it to a conclusion. I think from that regards, both are, in both situations, it's the same. It's the same set of skills. I think where it is different is recognising that at an advisory board for a family business, you are not the ultimate decision maker. The family is. Whereas in a, you know, sort of John Key having to front for ANZ or Dame [Therese Walsh] to raise for Air New Zealand. Yes, right. You are one of the decision makers. Well, you're more the sounding board, in fact, but it's the family who's going to own that. Sorry, I mean, in those examples of the formal boards. Then you are one of that decision-making body, whereas in an advisory board, you're a facilitator of decisions, not a decision-maker. Correct. And you're speaking specifically to a chair. So there is a sense, while the board may speak as one, there is the times that those boards and those chairs and those formal boards actually have to be ready to stand up. Yes, yes, right. What are some of the common pitfalls that can undermine the effectiveness of advisory boards? The inertia, and I think that, and I have sat in a situation like this, where you can be going around the circle for many years, and actually the family choose not to make the decision. We've had previous conversations, Mark, about succession and sometimes you know you can't force families to do something they don't want to do. And so there is a point where sometimes it just might be that You know, there's a saying, isn't there, you can lead a horse to water, but you can't force their head in. Well, as my son says, you can salt the water. Oh no, salt it's food. He says, you can salt it's food. So I think there is a piece where, you know, where everyone knows what the right decision is, but nobody actually wants to make it. Right, yes. And then I think we're just wasting everybody's time. How should a family business set expectations and boundaries for its advisory board? That comes back to some of the conversations that we've had in our past. Actually, Mark, I think we're being clear of what's actually the expectation of the advisory board. Do you want us to... And people coming into an advisory board should be asking the same thing. What do you want from me? Which is just good relationships, right. Do you want my input? Do you want my thoughts and independence? Hopefully, you don't just want me to agree with you. And so in a family business, it's the same. Are there issues that you never want us to touch? Are there sacred cows here that we're never going to challenge? One of the other things we talked about in an earlier conversation was around having the family values, as well. I guess that would be a good guide for that, too. How can advisory boards evolve as the family business grows or as ownership transitions maybe to the next generation if they've found the right person? I think for all boards, governance and advisory boards, the people around the table need to be relevant and fresh to what they're doing. So we all need to be ready to have an expiry date. And it doesn't mean it's a "best before", it's just the best before in that situation. So I think particularly if I can make sure I keep this vague enough. You know, a situation often with a younger person, entrepreneurial kid, that kind of stuff, will go,"No, we're going to put a governance board around you, a little advisory board." It brings that layer of older, wiser heads to the table and helps the 20-somethings just realise they've got a bit of wisdom around the table. But there is equally a point where you have to go. They need to be talking to somebody who looks a whole lot younger than me. Right, yes. So know, as you say, know when your expiry date is and be ready to pass the mantle on. Yeah, because there is stuff, and then particularly these days, there are topics coming to the fore. Do I know a lot about running an Instagram business? Absolutely not. I understand that, leave that to my daughter. A final question for you, what advice would you give to a new director? Give you three answers to this. Yes. That you have to keep your ego at the door. Yes. It's not about you. This leads to the second one. Understand that the board speaks as one. Okay. You understand what I mean by that? So you definitely, in the room, you have a good robust debate, but you then make a decision and stand by the decision as a board. When you walk out that door, it's one decision. And in a family business, remember that at the end of the day, you serve at the pleasure of the family, the family rules. I guess that's true of all businesses, too, right. As a director, you serve at the pleasure of the, well, in that case, the shareholders, so yes. Be aware that, add value or you may not have a role. Sandy, that's great. Thank you so much again for your time. Your company is Kimpton & Co and your specialisation is around working with families, and not necessarily, although you do work with very high net worth families, but also with families of multiple wealth levels around intergenerational family dynamics and family councils and having the family operate with intentionality. So really worthwhile giving Sandy a call. And thank you. I look forward to speaking to you soon. Sounds great. Thanks, Mark. Thanks for your time. See you next episode. Thanks very much. See you. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel, where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back, and please like, subscribe and share the videos and podcasts.