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Episode 32: Advisory Boards for Family Businesses - The Risks and Opportunities with Mike Sipple & Alan Aldworth

We talk to Mike Sipple Jr.* and Alan Aldworth* about the pros and cons of running the family business for the benefit of management, rather than for the shareholders and the risks that come with it.  

During the podcast, we will be focused on the following: 

  • How to understand the correlation between the quality of the board and success and sustainability of the family enterprise 
  • About the risks most family enterprises miss in the absence of a quality advisory board 
  • Governance topics every advisory board should be accountable for and why leaning on the board is healthy for the family 
  •  The main opportunities an advisory board presents for the family business 
  • How to choose the right board members for your family business 


Michael Palumbos (00:02.766)
Welcome everybody to the Family Biz Show. My name is Michael Palumbis and I am your host today and with Family Wealth and Legacy in Rochester, New York. And today we have two wonderful guests with us. And we're gonna be talking about advisory boards for family businesses, both the risks and the opportunities. Today we are joined by Alan Aldworth and Mike Sipple. Welcome gentlemen.

Pleasure to be here. Thank you so much for having us. Great. So Mike Sipple, why don't you just kick us off? You know, the tradition we have on the show is to kind of tell us a little bit about your journey and how did you get to doing what you're doing today? Sure. So Michael, I am a family business. I'm a third generation president and shareholder in our organization and...

been doing this 21 years. We're a boutique executive search firm that happens to be a family business that works with family business. So, as we like to say, we are one. But again, about 12 years ago, my dad and I started having a discussion that do you think you would have an interest in this company in the future? And my answer was, I really don't know.

So we went through a process with an organization called the Garing Center for Family and Private Business, their next generation Institute. And then, you know, the story is it unfolds. Six years ago, I took over as president. Three years ago, took over as majority shareholder for my parents. And here we are. So very excited to be with you today. Great, thank you. Alan.

Give us a little. I started my career in accounting. So I'm one of those reformed accountants. Now I'm the president of the Private Directors Association. I assumed that role in January of this year. So it's a new role for me. I really got active with the Private Directors Association last year. It's almost to the date a year ago, I founded the Houston chapter and.

Michael Palumbos (02:20.47)
Despite COVID, it was very successful. We grew the chapter to almost 200 members by the end of the year. And I got involved with the organization nationally and started putting in place some digital marketing methodologies and other processes and improving the resources and benefits for members. So they asked me to, if I would be interested in running the whole organization. So I took that on at the beginning of the year. So it's going great. We're, I just...

finished putting together a report for the board this morning and our membership revenue is up 350% Q1 this year over Q1 last year, total revenue around 300%, you know, net revenue after expenses up similarly. So we're growing gangbusters in a time when many associations are struggling. Before getting involved with the PDA, I was an executive.

Started a couple of companies in various technology areas, mostly around digital publishing. Grew those successfully to large companies that sold. And then I started really sort of professional board service. And I've now sat on about 23 boards in my career of all types, public companies, private companies, nonprofits. So you name it, I've been on that kind of a board in my career.

I started that in 1995. So I became very interested in the science of what the relationship between the success of the board and the quality of the board and the success of the company. So that's really why I got so interested in helping the PDA because the concept of governance is so important to private companies, yet it's underserved. So many private companies don't have a good board. So don't really know what that means.

So I really am taking it as my mission to help get that word out nationally, develop good directors for private companies and educate private companies about the benefit, not the need for, public companies need a board. Private companies don't need, but the benefit of a good fiduciary board or advisory board, how that really helps the company. Great, and that's what we're here to talk about today. So that's perfect.

Michael Palumbos (04:43.782)
As we go through this conversation, I guess, Mike, if you wouldn't mind just talking about, for those people that maybe haven't been exposed to it, what is an advisory board? And what is the, let's just define that a little bit. What is an advisory board and what are they for? Sure, so I'll share my perspective and my learning is-

the advisory board for our organization. So this has been a non-family advisory board. We currently have a only family board of directors. And the goal for us was to really to gain perspective, direction from people who have the experience of where we wanna go, the ability to lean in from guidance from others and to gain wisdom.

So, but that particular structure, in our case, you know, they don't have fiduciary responsibility, but they are coming on to a coordinated and organized group to help grow your business. And, you know, we had an outlay for our board of advisors, what the objectives were, what the strategies of the organization were, essentially a SWOT analysis so that they could really get in.

to the details of our business and help us peel back those onion layers to identify what's holding us back and how do we actually achieve the vision and mission that we've set forth for our business. So that's been our experience. And as I always like to say, not every, especially not every family business listens to advisors well.

And for those that are family businesses right now, you're either probably laughing or going, oh, tell me about it. But we have, you know, my father always seeks outside wisdom and he's instilled that skill and that interest and desire in me. And, you know, we listen to our advisors and what they're providing direction on. Cause they're, you know, to be frank, I want people that are in that seat that are smarter.

Michael Palumbos (06:57.246)
and have been there and have more experience than we have, or what's the point of inviting them onto your advisory board? So that's been my experience and it's been a very positive one. I only wish we would have done it sooner. And when I took over as president, that was one of my key negotiations that as soon as I move into that seat, I am establishing my board of advisors. Wonderful.

No, that's great. The pushback, and we'll probably talk more about this, but one of the biggest pushbacks I get is I don't want other people telling me what I should do. And the way you described it, I think it could be heard differently. Because basically what it is, is you're just looking to take the shortcuts. You're gonna let in, take in all the good and let out all the bad and just...

take other people's experience so that you don't have to go and make the same mistakes. That's right. And why wouldn't we, right? If our goal is to get further faster and to learn to, I want the learnings now if I can, you know, not have to go through the storm like others have, but certainly that's also what makes all of us great advisors, right? We've been through difficult circumstances. We've seen highs of highs and lows of lows.

And, but there's no doubt. I mean, there were within three of our first board of advisory meetings, our board strongly recommended we have finally launched this long-term vision that my dad and I have had that wasn't even a part of our search firm. So we ended up launching an entirely new organization that we spun out of the search firm that now has almost 50 team members on it.

called the Talent Magnet Institute, that if it wasn't for our advisory board, we would still be sitting on this dream, right? And we were afraid to go, you know, is it the right time? Are we willing to take the risk? And our advisory board came in and said, like, this is your legacy that you all have built, is this longer term opportunity and growth and scalability?

Michael Palumbos (09:23.554)
that our boutique search firm doesn't want to scale as much. We wanna remain boutique for a reason. So yeah, so things like that, right? I always tell my advisory board, if not for them, I still wouldn't have launched this business because I wouldn't have had the confidence. They gave me the confidence and quite honestly, some days they kicked me out of the nest and said, this is what you all should be doing. And that's the, now we have 50 team members.

four and a half years later of a company that didn't exist when we launched the advisory board. So those are the possibilities that can come from and they can keep you out of trouble and issues. And to be frank, the last 18 months, 12 months, I have never leaned on others more in my career than the last 12 plus months. And I'm very thankful I had people to lean on. Great, thank you.

Alan, why don't you, you know, let's dive into talking about kind of some of the pros and cons of running the family business for the benefit of management versus the shareholders. And that's really the key role of the board, whether it's the advisory board or fiduciary board, it's when that the family company is maybe moving past.

the founder generation to the next generation and beyond, where there has to be someone between the shareholders and management to ensure that there's that accountability, that management is running the company for the benefit of the shareholders. When it's first generation, the founder is an owner operator, that individual intuitively,

understands how to make sure that the company is being run for his or her benefit, right? I mean, that's why they were successful. But once the founder retires and there are non-family members running the company or maybe even a second generation president of the company, but there are lots of other managers barking in that individual's ear, there's the temptation to

Michael Palumbos (11:46.494)
shift toward thinking about, well, what do we need to do for management and management? The managers are wanting more perks and more salaries, and pretty soon the value starts shifting toward management. And it's that check and balance. Certainly you want the best talent, you want to compensate them appropriately, you want to incentivize them to maximize the value of the company. But

When you know, in the absence of that governance, what winds up always creeping in are compensation plans that are really skewed toward benefiting the individual of management without that direct connection between the accountability for improving the value of the company. And that's something that I've seen over and over again, are unsophisticated management incentive plans that were developed by management for themselves, not developed.

by, you know, with a compensation committee or a board oversight to ensure that this is a win-win for management done for the shareholders. Yeah. You know, I think I can add to that a little bit where there are times when the next generation coming in, typically second generation, may be thinking of themselves as both the advisory board,

and they are all managers. So they're all owners, they're all managers. And so we don't need an advisory board. And yet that lifestyle business where it's not about shareholder value, it is about what am I able to take out of this business for myself, that really messes with the transition to the next generation, doesn't it? It also messes with the family members

stake in the, you know, a stake in the company, but they're not working for the company. So the, you know, the owners of the company are not equally represented by the owner, by the operators who are running the company. I just saw a case of not mentioning any names and it's not a board that I was on, but it's a company that I've talked to over the years, tried to convince them of the value of an advisory board or a fiduciary board. They resisted that. You know, it turned out that the

Michael Palumbos (14:07.794)
owner, the CEO of the company who was second generation was really running the company for his own benefit at the expense of the other family members who had, you know, equity stakes. So he was a, an owner, but only a minority owner because of the other family members. When they really dug in and did an audit and found out what was going on, they, they ousted him. Yeah. I mean, and there will probably be litigation, but, you know, he was clearly thought he was doing the right thing. And the company was very successful.

but he was not equally sharing the fruits of the profits of the company distributions with all of the shareholders. And so that's the other thing that can happen is that as you pointed out, too much of the benefit is going to the owner operators who control everything, who are not really thinking about, compensating themselves fairly, but making sure that all shareholders are represented equally even if it's just a 1% shareholder. Got it.

What do you want to add to that, Mike? Chanting at the bit, I can see it. So I mean, there's three things that I want to add to what Alan just referenced building off of that. Cause it's really the crux of are you ready and what are you afraid of, right? I mean, the reality is a board of advisors, you've got to be willing to be vulnerable. So, you know, is it about what I've built, what we are, or do you want to get better? Are you afraid?

that what you already know about strengths and weaknesses of your organization are going to be amplified with a spotlight. And if you're afraid of that, that's what keeps people from it, right? I think you, you know, my belief is we need to welcome that because it's the only way we get better, right? Feedback is a gift. The other component about people do feel questioned and they also fear sometimes of a fear of their own mortality when you start asking for

You know, we want the, I mean, part of the board's role should be guiding you through the topic of succession, right? And for many people, succession means their own mortality. It means, you know, a next chapter. And you know, what many boards, people who have been experienced in this say as well, that's not really what it's about. What it's about is the perpetuity and long-term success of your business.

Michael Palumbos (16:30.718)
So, but it's still a very personal thing, right? If you, you know, my father ran the company without a board for 39 years. So who's going to come in and tell him what to change? I think the uniqueness with him in particular is although he didn't bring a board together on a formal basis, he has always had a lot of advisors.

So I saw that chapter with him. He just didn't ever bring them together in an organized fashion. And my thought was, let's bring them together in an organized fashion. Let them feed off of one another and provide the guidance and make sure there's consistency. But I do, I mean, I certainly know organizations who are concerned about what the board will highlight as Alan referenced, right? I mean, there are gonna be things that are found out that are seen that someone's gonna scratch their head and go.

well, why are we doing this? And the family may say, because we've always done it this way. This is how my grandpa did it. And this is how my dad grew up. And it's the only thing I know because I grew up in the family business. So those types of things, there's a very successful entrepreneur, his name's Clay Mateel. He built a organization called the Iams Company that sold to Procter and Gamble for billions of dollars. And the quote that's always resonated with me that I heard him say once,

is if I opened an ice cream stand, I would put a board together, right? And that was one of his, I was listening to him speak at an event with the Garing Center and he shared like the biggest learning is I wish I would have done it sooner, right? Cause his goal wasn't to create a little lifestyle business. He wanted to transform the world in his way. And he was successful doing that, but who, you know, individuals like that will typically share.

You don't get to the top of the mountain by yourself, right? And so yeah, Alan, everything you just said about that extra layer of vulnerability, boy, it's true. And you gotta be willing to take that step to help your company create longevity in long-term. No, you're totally right, Mike. And when you think about it, it's part of the DNA of what makes entrepreneurs successful and why they did what they did. So think about a typical story for an entrepreneur.

Michael Palumbos (18:54.306)
They were working for a big company. They had a better idea about how to do something and nobody listened to them. And so they were, you know, people were telling them what to do and they wanted to do things differently. So they said, the heck with this, I'm gonna go start a company and do it my way. So their, you know, their psychology, their DNA is, I don't wanna be accountable to people because I'm, you know, I'm the smartest guy in the room. I figured this out. Nobody in the big company would listen to me. So I started the company.

and now I'm wealthy and successful. So it's just counterintuitive to accept the fact that now you're kind of going back to what you left and being accountable to someone who was going to maybe tell you that your idea is not so good anymore. It's a hard thing to accept. Yeah. Two things come to mind as you guys were talking, one is, there were just books that popped into my head.

What got you here won't get you there, right? And so you have to be willing to make that change. And then the other one is Simon Sinek's, the infinite game. Business is that infinite game. And that's where that change has to happen in order for that business to stay infinite so that you have the board of advisors. This is great.

We added a client advisory board this year after 20 years in business. And I will say exactly what the founder of IAM said, I wish I did this sooner. In the first meeting, the board came out with three or four things that made us say, oh my gosh. Watch this one. I mean, you'll laugh. We serve business owners, right?

And regardless of whether the spouse is male or female, it doesn't matter, the spouse may not be involved in the business, typically they're not. And so when you send off that questionnaire of the common objectives surrounding the business, every one of our questions was surrounded based on if you were running the business. And so it was really eye-opening for the spouses. Somebody said,

Michael Palumbos (21:14.21)
why don't you reword one that's designed for the spouses because we have a different set of concerns about the business than the owner does. And I'm like, oh, wow, I can't believe all these years and we've missed it and no one's ever said it before. So, and that I think is the kind of what you're saying that comes from having an advisory board is that, you know, there's just a different set of experiences out there that you can tap into.

And there's an invitation, right? So you, by doing that, I mean, these are individuals who may have even known your brand before you invited them to join, but you invited them to share feedback that they believe would help benefit the way you serve your clients, right? But that invitation of asking, I would like your feedback, because people don't just wanna go around and give constructive criticism, but...

until you ask for it and say, no, I really want this. This is what I'm deploying you to do for us. And, you know, and it's amazing. I mean, when you involve your customers and you involve relationships and people who have the experience, again, we ended up launching an entirely new company. It was like, are we sure we're doing this? You know, I kind of joke, I'm 21 years into my career and now I'm a co-founder and CEO of a startup, right? So.

But I'm very thankful for it. And, you know, and it's been tremendous. The other, I was just gonna, there's a book that's been very helpful to me called the Five Steps to Board Success by Mark Daly. Five Steps to Board Success. And the reason why I bring it up is if it seems overwhelming, like where do I start? This is a great book that provides foundation of how to think.

what processes to put in place, how to be effective, and then how to measure success. So again, Five Steps to Board Success by Mark Daly. Really, I almost use it as a workbook instead of just a cover to cover read. So I encourage people to check that out. Great. Definitely will. You know, that brings up a really good point. When we did the client advisory board, we hired a facilitator.

Michael Palumbos (23:38.678)
And that was the best thing that we did. So, Mike, you had mentioned it before, Alan, I think you both did about being vulnerable and having the facilitator come in to do this. They coached me on how to be a good listener that there was definitely, when he said it, it was like, well, of course, but I know that had he not said it, there was things that I might've said, well, this is why we do that, or that's why.

And that shuts the board down. That shuts the advisory down. And like you said, you know, that came from, because, you know, Mike, you said, it's an invitation now to come in. Well, if you're going to offer that invitation, then make sure you understand what you're offering and be open to that guidance. That's great. Alan, would you mind talk to us a little bit about the correlation between that quality board, the quality of the board.

and the success and sustainability of the family enterprise. Well, I can't quote statistics, but I know that there's a lot of empirical evidence to support the fact that a company with a good board, a private company with a good board is more likely to be successful, more likely to be sustainable, that many, I know from personal experience, having in my career, I've done over 50 M&A transactions and then I've been on all these boards.

and a lot of the M&A transactions were buying or selling to and from private companies, family-owned companies, that the absence of good governance definitely impacts value. Bad governance kills deals, bad governance depresses valuation. So if you're just talking about company value in a transaction, bad governance definitely

negatively impacts that. Every deal lawyer knows that. Every investment banker knows that. But generally speaking, also getting to the generational issue, family companies that fail to move from one generation to the next and just either collapse or they have to sell because they can't successfully navigate that.

Michael Palumbos (25:59.178)
that is usually rooted in poor governance. It's very broad governance, it's governance about the family account, related to the family council and the relationships governance related to the company. But the root of an otherwise successful business with a good product or service that fails to make that generational shift that they're looking to make is I would submit almost always rooted in poor governance. So those are, if there aren't enough...

other compelling reasons for having a board. I think that that's it's an imperative. You really need to have this unless, you're willing to risk, complete implosion of the company. And then, otherwise the, you know, what I always, my mantra is that you're either changing and growing or you're dying. And a lot of other people say the same thing. And it's a common board director mantra and sentiment. It's easy to get stuck.

when you're running a company, your head is down focused on maximizing the year, maximizing the day, solving the problems. And it's harder to pause and think about, are we adapting to change? Are we looking around the corner to see what technology disruptions are about to smack us? Do I have the best management team in place that I could possibly have? Is the strategy the best strategy I could have?

do I have a successor for my key positions? Those are the big things that the board focuses on and the board will make sure that the company is looking at those things and challenging the company about that. And it's easy, in fact, the default is probably to underappreciate those things, not pay enough attention to those things without the board. But those, again, those are the little things that determine the difference between success or failure.

And it's a very competitive world that's changing rapidly. If you're not taking advantage of every opportunity to be excellent, then you're going to fail eventually. And the part of being excellent is to have an excellent board of, fiduciary board of advisors that's gonna challenge you on all those things and advise you on all those things. Agreed. Anything you'd like to add, Mike?

Michael Palumbos (28:24.258)
No, I mean, it's spot on. So again, if you're still questioning this and you're listening, just go back and re-listen. And I think, Michael, what you referenced that you wish you would have done it sooner once you do it, right? Once you step into this and the success is, you know, you're always going to be more successful when you surround yourself with great people.

Right, so it's going to immediately increase your ability to elevate and whatever that success might look like. But again, this is a way for someone who isn't afraid of how you view their answers and responses, which as a CEO and a business owner, the people around us, unless you set a culture that they can be constantly really giving you their real...

unfiltered feedback, which is what your board should be doing. You know, people aren't going to always say that the, you know, the CEO or the owner of the company has some challenges or struggles that they need to work through themselves or for their business's long-term success. So and there's many reasons for that, but that's what a board is supposed to do. That's what you're chartering them to do for you. So.

And you know. I wanna jump in there, because I think you're onto something. I wanna expand on that a little bit Mike, if you wouldn't mind. Basically what you're identifying is that a good quality advisory board is gonna help you identify the risks that probably a lot of other family businesses might miss. Yeah. So what are some of those risks? You know, what are some of the things that the board is, you know.

thinking about and gonna lean into, as they're working with a family to help them see these things. So succession is one of them. Yeah, many of what Alan just mentioned, I mean, succession is a key part. For us, Alan, you mentioned the talent, like do you have the right people on the team to actually help you achieve your goals and objectives? There are many family-owned businesses.

Michael Palumbos (30:40.866)
not all, but many that never get to scale, right? And how they get to scale, you know, it's a thing called private equity, right? That brings in an infusion of capital because a lot of us family businesses are conservative. We've built every dime we've gathered, we wanna hold onto, and we only wanna reinvest it back into certain aspects of the business. But...

The board will help you realize that reinvesting back in the business means hiring great talent means upping your game, elevating the level of talent on your on your team. If this vision that you've set out, you actually want to attempt to go after right so that's another big part of it. The other thing is all the risks, you know, do you have the right protection inside your business.

everything from cybersecurity to E&O to technology to industry. I mean, again, think about all of the innovation. I read a photo that ran around LinkedIn for a long time that talked about, you know, who drove the best innovation in your business the last 10 years? Was it your CEO, your CMO, your CIO or COVID-19? And, you know, many would say it's because of COVID that we shifted up, you know, upshifted.

Those with boards may very well say, well, my board helped me do that, right? My board's the one that pushed me. My board helped me get out of my comfort zone and honor the fact that this is what we've built and this is where we could go. So the other thing I do, there's always a component of confidence. The right board should be giving you confidence that what you're laying out and what they're seeing

is the possibility or they're gonna remove it off the table. They're gonna take it away because yeah, we don't wanna go down that path, right? So again, it's up to you to decide if it's a board of advisors giving you the feedback. But as many people, including myself that serves on board of advisors all know, you wanna join a company who's gonna at least listen and make sure you feel heard and they're gonna take into consideration.

Michael Palumbos (33:00.578)
the guidance you're providing them, even as a board of advisors.

Good advice. Alan, you talk about governance and you've used that word and that means different things to different people sometimes. Why don't we expand on that a little bit and talk about what is good governance that the board should be bringing to the table? What does that look like? What are the topics that are covered inside of there? I think they probably parallel with some of the things Mike was just saying but I think we can go a little deeper there.

Yeah, it's a great question, Michael. And I think it's something that there's a lot of misconception and misunderstanding about. Because in the public company world, people are more familiar with boards of directors of public companies and what they do. And with public companies, there are so many compliance issues that boards have to be mindful of that it's easy to.

assume that that's governance. That all of the things that public company boards have to do around compliance and reporting is what governance means. And I think that's part of the misunderstanding and misconception with private companies is they say, well, I'm not public, so why do I need all of that bureaucratic stuff, all those hoops that public companies need to jump through. But with...

Certainly there are some financial reporting and compliance related issues, legal issues with private companies, but the governance is a much bigger word. Governance with a big G I say, because it really encompasses all of the oversight of all the activities of the company. So it gets to, as we talked about already, strategy, succession planning, management, management incentive plans, talent.

Michael Palumbos (34:59.886)
you know, budgeting, planning. So it's, you know, it's the oversight of all the key drivers of success and all the risks that the company may face. And ensuring that the company has, to the extent possible, board directors, especially a board director of a private company, a family company, really needs to be very wide, you know, a couple of inches deep, not shallow, but you have to know

a little bit about everything in those categories. And that's really a little plug for the PDA, Private Directors Association. That's what we're about is helping directors understand the full breadth of things that they need to know enough about that they can evaluate it and advise companies. And it's a continuous process. There is so much to know and you're never done learning.

So, you know, we have courses, webinars, information, and our resources library. There's just so much that you really have to know to be a competent director. But that's the big G in governance is it's every, all the key areas of the company that determine its success or failure and making sure that the company is maximizing those to the extent possible with the team in its place. Do we have the best strategy? Do we have the best management team?

given the circumstances, again, are we capitalizing on discontinuities in the marketplace, whether those are technology or otherwise, changing consumer behaviors, changing the retail industry, how does that impact the business? So that's where having that 50,000 foot view of people that have been generally board advisors are former...

multiple C-suite executives and often have sat on several boards. And so you just have that bird's eye view of the world that it's difficult if you are spending 12 hours a day making sure that the wheels stay on and keep everybody happy. We always talk about, there's a time to work on the, you need time to work on the business, not just in the business, right?

Michael Palumbos (37:21.186)
Yeah, that's very well put. And the board makes sure that the CEO and the management team are working on the business. And if they're not, then it's, you know, ultimately, they say that this is really fiduciary board issue more than advisory board issue. But the number one job of a fiduciary board is to hire or fire the CEO. And so if they're not working on the business, then they may not be the right CEO. Right.

Something that popped into my head that I'm just gonna, we've never talked about this and looking for your opinion, but I can kind of see this, a transitionary period for some family businesses that are reluctant to jump right into having an advisory board. That's a really, really good business coach is really coming in to help them think through.

all of those things, strategy, execution, talent, what's going on with the cashflow and profits, what's happening with the systems and processes, do they have their core customer really dialed in? And as you were talking, Alan, and both of you, Mike, it was, I thought of what you're doing is it's a business operation system, a business operating system that you're kind of

injecting onto this business where it's, we need to move from the service or the product that we do so well, because that's what happened. They started that because they did something different. They wanted to do something different. They designed something different. Like you said, Alan, nobody listened to them. So now I'm gonna be the entrepreneur and start this thing. But it gets to a certain point, one, it's just a size.

factor. But two, I think it's also, let's see if I've got this right. The other piece is that when you're transitioning from the person who was in charge of that widget that had that energy and that passion to the next generation or even later, you really need to be putting in some professional practices. Would that agree, disagree? Is that

Michael Palumbos (39:44.743)
Well, yeah, certainly every product or service has a life cycle. You know, obviously some are longer than others some life cycles may last going for decades but you know increasingly life cycles are getting shorter not longer and sometimes they, they only last a few years.

Michael Palumbos (40:13.75)
completely change the characteristics of your value proposition, then you're gonna fail. You're gonna implode. And again, the DNA of the entrepreneur tends to reject that. So I got this far doing this thing, it's gonna carry me. It's gonna carry the company forever. That's just patently nonsense. It's insanity because...

Every product or service is going to have a life cycle and it's going to, you know, eventually it's going to decline, eventually it's going to die. And that could happen, you know, we've seen that happen now recently over and over again, that it's, you know, companies have been successful one year and they're gone the next.

Michael Palumbos (41:01.89)
Yep, the other thing I was gonna reference, this is a, it's a key opportunity for those listening who were saying, how do I make my companies more diverse, inclusive and equitable? Your board should be a key leverage point there and a tremendous opportunity to start at the board level.

and ensure, you know, look around you and say, yep, these are all of my friends or no, these are individuals who come from lots of different backgrounds. And I was just helping a client of mine who's a 116 year old packaging organization who she took over as the CEO when her father passed away unexpectedly. And, you know, she recently came to me and said, Mike, I've...

I have never had a woman on our board, right? I'm in the packaging industry, I'm a rare female CEO and I would love to have a woman on my board. So can you help me do that? So, you know, last week she officially announced that we ended up placing two new board members with her to help her with that. So your board can really help you drive some key metrics. And I...

I couldn't let this conversation go without bringing it up because it's so important. The more inclusive you are with gender and aspects of diversity, the more successful businesses are. It makes your culture stronger. It makes your company more profitable. There's so much data to back it up. And some of us go, I don't know what to do with that. We'll hand that problem over to the board and say, I want you to figure out the equation.

to make this happen, right? So it's a great first task to your board if you've got all of your, you know, you feel like our company's in a great position but we can elevate even more, we don't know what's holding us back, that could be a great topic to tap your board with. Great. Other opportunities, you know, that the family business should be thinking about

Michael Palumbos (43:22.37)
when it comes to the advisory board or what an advisory board presents that we haven't tackled at this point. Anything? When companies are reluctant to really plunge in head first, I encourage them to start with one. Bring in, so you've got a board.

You know, maybe it's the owners of the company, it's rather informal, maybe they meet regularly, maybe they don't, but every company has a board. You know, it may be a very informal board, but bring in one independent director that is very knowledgeable in governance and let that individual help you form a board that's more

structured, more formal that begins to behave like a fiduciary board. So, you know, there's still the independent director is still an advisor is not doesn't have a fiduciary capacity, maybe other people around the table are family members, but not fiduciary directors, but start to behave like a board. One experienced person can help you do that. And that's not a big

Michael Palumbos (44:47.89)
And if it doesn't help, tell me that I'm full of, you know what, and I was wrong. But I highly doubt that that's gonna be the case. And I'm almost positive you're gonna say, gosh, I wish I had done that sooner. Let's get some more people in here. Yeah, yeah, I love that point, Alan, because we, you know, my firm, my search firm, we actually place board members, but.

And so honestly, I had a little bit of fear to be, you know, to be very direct. I was like, you know, I've never had a board. So I ended up hiring or basically engaging an individual who I know I wanted on my board that had been CEO five times over that I admire that I looked up to. And Alan, to your point, I had him working with me for almost a year in advance of our first board meeting.

because I wanted to make sure that one, I was prepared, two, that I looked like I was prepared. And I ended up engaging him as my, you know, I hate to use the word secretary, and I almost felt like chairman, even though my dad was the chairman. Like we leveraged him to help us maximize our board success. And you had already decided you wanted a board, but you could have also been at the position where

I don't know whether I want this or not. So I'm gonna try this before I buy. Yeah. Yeah, and just had him start to act like, he kind of, he did that. He pushed on us pretty hard to get us prepared because we went to him and said, if we're gonna do this, his name is David, how do we maximize the success of, what should we be expecting? How do we need to show up? And to be frank, what are some things that we could probably do early that would be

better prepare us for the board in a year from now. So we started a year out and again, better to do that than to start when you have to, right? So, but I mean, there were some things that we even had to kind of clean up and make decisions on that, you know, hey, you know, preferably you don't wanna have your board asking this and you not have an answer to it, right? So we worked on all of those things and I think it's a great idea and start with one.

Michael Palumbos (47:09.558)
You know, don't overwhelm yourself. Don't feel intimidated. But you know, the other thing I was gonna add Michael is the don't filter who you ask. Like think about your dream candidates and go for it. Right? You have a lot to be proud of with your business. You have a lot to be thankful for and a lot to be proud of. And there are people who desperately wanna help.

family-owned businesses get to a next generation. Yes. So I, you know, my friend David said, put zero filter on who you ask because you're afraid they'll say no, right? Go to the people who you know can help you and just ask them. And I did that. And, you know, we had four board members pretty quickly say, oh my gosh, this would be an amazing opportunity. I would love to help your business.

That's really key, Mike. I mean, just, I would love to help your business be successful. People really do get a lot out of this. It's not just a monetary reason that they're there. They're there because it's just, if we can make good things happen for other people, that's great. It's more jobs, it's the community. There's a real, you know, a buy-in on many, many of these advisory boards or a fiduciary board member.

at the private level.

Michael Palumbos (48:41.466)
that most people that are interested in serving on private company boards aren't really doing it for the money. You know, frankly, it doesn't pay all that much, especially compared to the caliber of people that you see on boards. They may have been in the C-suite with seven figure salaries. So, you know, what a private company board pays is not changing their lifestyle, but it really is a sense of...

It's almost a patriotic thing. We believe that private companies are the backbone of the US economy and that we want them to be successful and we understand, and back to the beginning, we understand the correlation between the quality of the board and the success of the company. So we feel like we're doing our part to contribute to the US economy.

So that's why you find such excellent people because they really do feel like they're, you know, this is almost their patriotic duty to help private companies succeed. Yeah. And Mike, to your point of don't limit who you ask, my advisory board is a client-based advisory board, but there was two people in my head that I'm like, you know what, they may not be clients and I don't care if they become clients.

but their background in serving family-owned businesses and being a family-owned business and the level of success that they have achieved and all the services that we bring to the table, they could probably help us. Yeah. Both said yes. And both, so it was like, some of the feedback that we're going to, that we plan on getting through the years is at levels of,

the much higher than we would have just based on our current, you know, our current clients. And I mean, it would, meaning that just the level of wealth and the level of things that they've been exposed to and the level of success that they've been exposed to in their business was surpasses what most people could ever dream of. And to have them sitting there saying, you know, we'll help you is like, wow. Yeah, I went so far and just again, I in spirit of transparency, I had a client of ours.

Michael Palumbos (51:01.71)
that I knew could help us elevate. And when I asked her, it would preclude me of working with her company again because of conflict of interest. And I wrestled with it and we talked about it, but it was more important for the longevity of my business to have this leader's insight in my business.

than even the client relationship. So I risked it and invited her. We had to work through conflict of interest and all of that with her company and disclose and do all of those things. But I mean, I still feel to this day, it was one of the best things I did because she's got so much wealth of knowledge. She's my buyer, right? She's the one that makes the decision on the other side of the table. And

And because she has such a unique, I mean, we went after it. Like this is the person I want to ask, but she's a client. And it was like, well, let's ask. And it got to the point where they did re-engage us in a project because, hey, you disclosed it, right? So, I mean, this was probably two years after she started on the board. But, you know, but again, I, you know, you got to make these kinds of decisions. Be really strategic on who you're asking and just go for it.

Right? Who is going to make your business better and who's going to help your family reach its legacy that it desires. And use that filter and just make the ask would be my encouragement to all of your listeners. Talking about, let's finish up with that. Talking a little bit more about, you know, choosing. Number one was don't, you know, don't limit yourself. But if you're choosing, you know,

the right board members for your family business? Are there like, I get it, different segments of, what are you looking for? How do you round that off? What's going through your head if you're starting that process, Alan? Well, you wanna do what's called a skills matrix. So there are templates for that sort of gets you started thinking about, it's basically all the different categories of governance.

Michael Palumbos (53:23.594)
you rank or those you put on the things that are maybe particular to your, to your business or what you're looking for. And then you just prioritize those into what are, you know, what are non-negotiable skills or attributes, experiences, what are the things that are nice to have, but not, you know, not absolutely critical. I'm sure that might be do this. So we probably talk with your clients about what's developed the matrix of non-negotiable things so that.

I can match up candidates and present folks to you that check all the boxes. So it's really going about it in a systematic way, developing a matrix. And then you really spend a lot of time thinking about what's on that and how do we prioritize that and what is non-negotiable and then work with Mike or any recruiter. Or even the PDA has a posting service where you can match up the

the directors and their attributes with the skills that are required of the board directors. And then of course, there's the chemistry. So you do the first filter with the measurable things and then go on to the interviews and test the chemistry and the passion you want as individuals to really express a tremendous amount of passion for why do you wanna be a board director here? Why are you passionate?

about this company or why could you become, what would make you passionate about this position? Yeah, the only, I'll add just a few elements here. I mean, it's, you know, what, I kept looking at like, what's holding us back, right? What are some of the approaches that we've taken that we want to have questioned to make sure they're valid and.

you know, in our case, you know, we needed to look at a little bit functional. So we needed, I wanted an individual who had been a CEO, who had led in a way that I desire to lead on our board. I wanted an individual who was on the human capital people culture side at an executive level. We wanted someone solid in finance who really understood the difference of.

Michael Palumbos (55:44.258)
finance and long-term success and how do we leverage and how do we use the right tools to grow our business. The other component was I wanted someone who had been an entrepreneur that built a sellable business. You know, I always like to say as a family business owner, I don't necessarily have a vision of selling my company. I want to do this in perpetuity and change the world, but I want a sellable business.

And I want to think like, you know, if and when anything did happen, is the business sellable? So I got someone who had sold a company to Corn Fairy and huge asset to the way that I think today and the way our business is structured, because she had built a successful global consultancy, which is really hard to build a consultancy that's sellable, because it's such a human to human interaction. So.

And, you know, and the other thing is you're not stuck with the first decisions, right, Alan? I mean, you can adjust based on terms. I do recommend terms. And for the reason of you can always relist folks, but you also, it gives you the ability to not offend someone and to bring in some different skill sets based on where you are today. So. I think that's smart. Most private companies don't do that, but I think you're right in that it makes sense to do that, because then you can, you know, someone.

can be up for another term, but I think the default should be that once their term is over, then they're going to be replaced. Yeah. And that's, so that was really helpful for us. We've gone through a few different terms and have based on where we are now. The state of the business brought others in. So yeah, that's just some additional thoughts there. Sounds like you're doing everything just the right way, Mike. It's refreshing to hear that.

That's probably not the case, but I have a great board who keeps me on track. This, I think this has been helpful for a lot of people. I mean, I learned a lot listening to you and just, I have a much, what's the word I wanna say here? I just got tongue tied. Just a fever, I guess, and a passion for,

Michael Palumbos (58:10.59)
really helping people to understand that when you're running this business, that putting that at least the advisory board level in there can just make a huge difference for them. And especially, you probably have all seen the three circle model when you have that ownership piece that is not in part of management, but they're part of family, you really need that board is that in between the family.

and the business and the management. So this has been great. If people wanted to reach out to you, how did they get ahold of either one of you? Where do you? So I try to make it very easy. You can pretty much find me Mike Sippel Jr., Mike Sippel Jr. on most social platforms. Reach out to LinkedIn. You can also go to, which my team

keeps up to date with all kinds of good tools, but please reference Michael when you reach out so I can connect the dots and, or Alan, if you learned about me through one of the two of them, so I can thank both of them as well. Great. And easiest way to reach me is ceo at priv Great. And, and one of the other things is if you put in a board,

yourself somewhere along the lines, you may reach out to Mike or Alan to become a board member of somebody else's to help pass good things forward, right? Pay it forward, so to speak. Even if you're only a board member of your own company and no others, you still ought to be a part of the private directors association because you need to know about what a board is supposed to do just as much as the independent directors that you bring in. Great job. No, I appreciate that, Alan.

Well, thank you everyone for joining us. This has been an awful lot of fun. I really appreciate your time and your attention to both Alan, Mike and myself. My name is Michael Palumbas with Family Wealth and Legacy in Rochester, New York. And this has been the Family Biz Show. We can't wait to talk to you next time around. Have a great day everybody. Bye Michael, bye Mike.


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Michael Palumbos is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Family Wealth & Legacy, LLC is not an affiliate of Lincoln Financial Advisors Corp. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.