Building a Strong Foundation: 3 Critical Governance Committees for Larger Practices

Paraphrasing Michael Gerber, author of E-Myth Revisited, “Sooner or later, the day will come where the technical skills of your trade or profession are no longer enough; you’ll also need to acquire the business skills necessary to effectively run a business that delivers your technical work.”

I refer to this as ‘accidental ownership’— advisors who don’t set out to build a large enterprise but rather to do a great job for a select group of clients. However, one unintended consequence of achieving this is that those clients begin referring friends and family. Before you realize it, you’ve collected a large roster of new clients that necessitate building a team.

For most advisor entrepreneurs, small teams are easy to lead. But as you grow and the size of your team expands, communicating your vision, leading others, and creating an environment that allows for efficient scaling becomes paramount to the flawless execution of your plan—and ever more challenging to execute. The more you can create a framework that expands as your team expands (while also providing opportunities for others to learn to lead), the more you’ll be able to establish a repeatable structure that grows as your firm grows.

A key component of successful and sustainable growth will be the establishment of effective team governance. Not only will it help optimize the execution of your team’s plan, it will do so in a way that maintains transparency, accountability, and efficient decision-making within the organization.

For smaller practices, this is usually a relatively simple undertaking. In these instances, the ClientWise Professional Advisory Model™ generally provides a more than sufficient governance framework. But as your advisory business grows (e.g., beyond 15+ team members), good governance tends to become an exponentially more complex challenge—the proverbial ‘too many cooks in the kitchen’ dilemma with nothing getting accomplished due to paralysis by analysis.

This is when a demonstrated track record of strong governance (in tandem with an established board of directors) becomes essential—especially if you intend to attract investment dollars down the road from a private equity firm. One of the best ways to achieve proper governance is through the establishment of various committees focused on critical enterprise functions—most notably around the following three areas:

Executive Committee

Purpose:

Plays a pivotal role in shaping the overall direction of the financial advisory business. It focuses on long-term strategic decisions, high-level governance, and firm vision. Representing owners and stakeholders, the committee ensures the firm’s long-term objectives are clear and well communicated throughout the organization.

Composition:

Typically, the senior partner or CEO of the firm serves as Chairperson, with committee members comprised of key decision-makers and leaders within the organization.

Responsibilities:

• Strategic Direction—setting the long-term vision and goals of the advisory practice
• Mergers and Acquisitions—evaluating potential mergers, acquisitions, or partnerships
• Financial Oversight—ensuring the overall financial health and sustainability of the practice
• Legal and Regulatory Matters—addressing legal and compliance issues at the executive level
• Stakeholder Relations—managing relationships with external stakeholders (including investors)

Operating Committee

Purpose:

Focused on day-to-day decision-making and problem-solving, this committee assumes responsibility for executing the Practice Management Committee's strategic plans.

Composition:

Typically, a Chairperson is appointed by the Practice Management Committee or elected by other committee members, with members comprised of key stakeholders (including department heads and managers).

Responsibilities:

• Execution of Strategies—implementing strategic plans set by the Practice Management Committee
• Resource Allocation—allocating resources effectively to meet key objectives
• Risk Management—identifying and mitigating operational risks
• Performance Monitoring—tracking performance of different departments and teams
• Communication—facilitating communication between various departments

Practice Management Committee

Purpose:

Serves as the backbone of your firm’s corporate governance, with the primary purpose of overseeing the day-to-day operations of the business and ensuring it runs smoothly and efficiently.

Composition:

Typically, the firm's senior partner or managing director serves as Chairperson, with committee members selected based on expertise in various aspects of the business (e.g., client relationship management, business development, team development, operations, compliance, technology, and marketing).

Responsibilities:

• Strategic Planning—developing and implementing strategic plans for the advisory practice
• Client Relationship Management—ensuring exceptional client service and satisfaction
• Compliance—making sure all regulatory requirements are met
• Human Resources—overseeing recruitment, training, and development of staff
• Compensation—stays abreast of industry compensation trends and recommends appropriate structures to attract and retain top performers
• Technology and Innovation—keeping the business up-to-date with technological advancements
  
  

5 Steps to Establishing Effective Committees

1. 1. Clearly Defined Roles: Make sure each committee has a well-defined purpose, responsibilities, and decision-making authority to prevent overlap or confusion.
   2. Thoughtful Composition: Carefully select members with the right expertise, experience, and commitment. Diverse perspectives help enhance decision-making.
   3. Clear Communication: Foster open and transparent communication among committee members and between committees. Regular meetings and reporting mechanisms are essential.
   4. Training and Development: Provide training and development opportunities for committee members to update them on industry trends and best practices.
   5. Review and Evaluation: Periodically review the effectiveness of each committee and make adjustments to improve governance.

As the financial advisory industry becomes increasingly competitive, ensuring that your growing enterprise runs efficiently, adapts to changes, and continues to thrive has become more challenging. It takes intention, careful planning, and the right corporate governance structures—an Executive Committee to set the vision, a Practice Management Committee to build the framework, and an Operating Committee to execute the plan—to establish a strong foundation for ongoing excellence and sustained success.

Coaching Questions from this Blog

• Who do you currently turn to as a sounding board for business advice, counsel, and feedback on strategy, governance, and profitability? How might you add more structure to improve the frequency and quality of those interactions?
• What actions will you take to better anchor your vision for the firm’s future and begin institutionalizing strategy, policies, processes, and decision-making?
• How will you expand or improve your team’s framework for learning, decision-making, and executing its business plan?

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