Where does a CEO turn for advice—on an equal footing and with a positive outcome for the company? Numerous studies and media reports show that advisory boards are becoming increasingly important for companies in this regard. About 50% of all family-owned businesses have now established an advisory board, and the trend is on the rise. This trend is most prevalent among large companies. However, an increasing number of companies with annual revenue between €1 million and €25 million are also seeking support from advisory boards. Martin Kaltner, a partner at succession planning specialist omegaconsulting GmbH, confirms this trend. In family-owned businesses in particular, an advisory board is worth its weight in gold—as an advisor, sparring partner, and catalyst.
A Look at Advisory Board Practices
For over a decade, Martin Kaltner has been a member of the advisory board at a large, medium-sized retail company. This long-established Munich-based family business had decided to establish an advisory board more than 20 years ago. The catalyst at the time was a succession plan and the intensive consultation provided to the new managing directors during this phase. “Establishing the advisory board was a key factor in securing the company’s future,” Kaltner is certain:
The advisory board critically monitors the company’s work and development, offers solutions, and plays a key role in shaping its strategies. This ensures the company’s progress—this outside perspective helps.
How does the advisory board’s work actually function?
The advisory board’s powers and its membership are defined in the articles of association. “In addition to external members with a high level of expertise, representatives of the owner families also sit on the advisory board,” summarizes Martin Kaltner.
Up to 10 meetings are held annually, so the exchange between the Advisory Board and the company is very close. Topics of the meetings include, for example, strategic decisions, the appointment of managing directors, and discussions with auditors and tax advisors. The Advisory Board is also responsible for approving the company’s business plan
as well as their review in the form of semiannual reports. Investment planning is therefore also subject to the Advisory Board’s approval.
Regular Reporting
Management is required to provide regular monthly reports on business performance to the Advisory Board. “In addition to this obligation on the part of management, we as the Advisory Board also see ourselves as having a duty to seek out information,” says Kaltner, defining the self-image of the Advisory Board members. Important business decisions made by management must be subject to informed scrutiny. Within the framework of corporate governance—the fundamental principles of business management—the Advisory Board must meet increasingly stringent requirements regarding corporate oversight.
Advisory Board Profiles and Success Factors
In the case of this long-established Munich-based company, the advisory board includes experts from the fields of law, commerce, IT, logistics, and finance. The advisory board members are also distinguished by their many years of successful experience in various consulting and management roles at medium-sized family-owned companies. In addition to technical expertise, the role of a “mediating element, a mediator,” is also important, as Martin Kaltner explains. “The size of an advisory board should be based on the size of the company and the complexity of its business,” he says. The advisory board is fundamentally not a “rubber-stamp committee”—in that case, it would have failed in its function.
The spirit of the company lives on in the advisory board
There is considerable flexibility in structuring the advisory board’s rules of procedure. This distinguishes it from the supervisory board of a stock corporation, where oversight rights are precisely defined in the Stock Corporation Act and the articles of incorporation.
This becomes particularly important when an owner
to a successor. Whether the succession is handled within the family or involves a new external management team, the departing owner is often concerned with securing the long-term future of their company—their life’s work—and ensuring that the company’s values live on. The transferring owner can wisely and knowledgeably expand the advisory board’s control and co-determination rights in such a way that the corporate culture can continue to thrive. In this sense, the owner can continue to help shape the future of his company through the advisory board.
That is why Martin Kaltner’s recommendation is clear: “I see the advisory board as a sparring partner for management, as a supervisory body, as an important decision-making body, and also as a catalyst in the company’s operations. A well-functioning advisory board plays a key role in securing the future, particularly for family-owned businesses undergoing a generational transition.”
