The document discusses recommendations for improving the advisory board and transitioning leadership at Northwest Security Services. Some key points: 1) The advisory board selection process could be improved by having Bob and Rex jointly evaluate candidates and implement a formal selection process with terms of engagement. 2) To avoid conflicts of interest, the board rather than family members should develop a formal dividend policy based on strategic goals, liquidity, payout ratios, and flexibility. 3) For equality, the same benefits should be offered to family and non-family employees, and non-family members should have management roles. 4) A smooth transition from Keith to Mike and Grant as managers should involve setting goals, communicating the changes, job

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Northwest Security Services
Name
Tutor
Date of Submission

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Evaluate Bob’s process for establishing the NSS advisory board. What could be improved?
The invitation of the advisory board was an informed decision as it included subject matter
experts to the organization. The new team would provide the expertise needed to fill the
knowledge gaps for the Wilson family as the business grew. The advisory board did not perform
any governance or represent the organization's stakeholders. Their main role was to provide
strategic advice to the management team, which is critical for the growth and development of the
organization. The hiring of the advisory board has its advantages and disadvantages. I have also
made suggestions on how to improve the advisory board.
Benefits of the advisory board
First, I welcome Bob's decision not to pick family members or close friends for the advisory
board. This would have caused internal conflicts and could not have supported the business
growth. Secondly, the advisory board members were picked from different backgrounds. The
experts provided value for money in the business. The advisory board leveraged the company's
networking position. The members came from different backgrounds, which increased the
company's networks with external stakeholders. The company also developed a reasonable
compensation for the board members minimizing conflicts of interest. Therefore, it was an
informed decision to pick an advisory board to facilitate growth and development.
Limitations of the advisory board
Despite the important decision to invite an advisory board to the Wilson Family business, there
are some things which I don't concur with. First, the decision of selection was solely made by
Bob and a bit random. Secondly, the company did not send annual terms for the board members,
and no formal selection process was followed. There were minimal regular meetings during the

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year, which is not a good governance procedure. Finally, the board members remained stagnant
over the years, overriding the importance of cohesive governance structures.
Suggestions
I propose the following suggestions for improvement of the advisory board. First, as key
shareholders and managers of the firm, Bob and Rex should work together in the selection
process. There should be a due diligence process to evaluate the individual profiles of the
selected board members. Furthermore, Bob and Rex should rank the board members with a
rating scale and select the best. The due diligence process is important in selecting a team that
would provide optimal value to the organization. Secondly, the company should define the terms
of engagement with the board members outlining their rights and obligations when participating
in the board. The terms of reference should be accompanied by a compensation package and
signed by each member. Thirdly, the terms of reference should be signed by each member. The
board members are privy to confidential information protecting the business from leakages.
Fourth, board members who are no longer relevant to the organization should be rotated or
retired. Hence, selecting board members for the organization should be a continuous process to
encourage diversity and new skills in the business. Finally, the company should enhance board
relationships with a cohesive communication channel. Hence, the advisory board should meet at
the committee level to provide viable inputs before the board members. The underlined changes
would improve the company’s governance structure.
Who should set dividends to avoid conflicts of interest? Create a specific policy and method of
making dividend decisions. Should non-employee family members be represented in this
process?

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Bob and Rex, as major shareholders, set the rule for setting dividends rather than implementing a
formal dividend policy model. In my view, it is the responsibility of board members to set out a
company dividend policy. Some of the common dividend policies set out by corporations include
the constant, regular, stable, or residual dividend policy depending on the life cycle stage.
Therefore, Bob, Rex, and their children should not have been involved in formulating a dividend
policy.
Thus, to avoid conflicts of interest, I suggest the following process in setting out the dividend
policy. First, the dividend policy should understand the company's strategic plan, which includes
the short-term and long-term goals. A residual dividend policy would be recommendable for a
company in its growth stage after allocating funds for capital expenditures or acquisitions.
Hence, the short-term and long-term goals should help the board develop a dividend policy that
incorporates the firm's strategic objectives. Secondly, the dividend policy should assess the
liquidity position of the business. Hence, using capital budgets and liquidity ratios, the company
should continuously assess its liquidity position. An organization suffering from liquidity
problems should conserve a huge portion of its funds and have a lower dividend payout ratio.
Thirdly, the company should have a formula or a payout ratio that determines how much is
pegged on earnings at the end of the financial year. The board and the management should
investigate the company's financial health before determining an appropriate retention and
payout ratio.
The fourth factor that should be considered when setting out the dividend policy is timing. The
board can recommend either quarterly, semi-annual, or annual dividend payments depending on
earnings. A high-growth firm can be able to pay dividends regularly as compared to a slow
growth firm. Fifth, besides liquidity, tax considerations should also be factored in when

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developing the taxation policy. The sixth consideration that the board should consider in the
distribution of dividends is family entitlements to avoid conflicts of interest. There is a need to
consider the best practices being adopted by other family members in this case. Lastly, good
dividend policies should allow flexibility due to economic and business cycles. Thus in times of
high economic growth, the company can consider paying more, while in times of slow economic
growth, the board should consider a conservative policy to preserve liquidity. Overall, the
development of a dividend policy should be a collaborative process between the management
and board members adopting the best practices in the market.
Should there be different benefits for non-family employees than those available to family
employees?
I'm afraid I have to disagree; the company should not create a set of benefits that may demotivate
non-family employees as it would be viewed as discriminatory. Instead, the company should
consider enhancing the current human resource structure to attract and retain the current
employees. The Wilson Family business should consider offering employee stock option plans to
increase employee loyalty. Moreover, non-family members should be paid at market value to
avoid employment lawsuits. Besides compensation and benefits, the business owners should
empower the non-family associates by offering more roles in management structures. There
should also be training and development frameworks for the career development of associates.
The strategies should increase loyalty and lower turnover rates, creating a stable human resource
structure in the organization. Hence, for equality and non-discrimination purposes, the
organization should adopt a model that does not cause a conflict of interest between family and
non-family members.

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Devise a specific plan for effecting the managerial transition from Keith to Mike and
Grant.
The managerial transition from Keith to Mike and Grant should be smooth to avoid disruption of
business activities. An effective plan should include setting family goals, job shadowing,
communication, and responsibility allocation. Bob and Rex should involve family members in
setting goals for the transition to include all available options and issues affecting the going-
concern aspect of the business. The family members should provide input on the transition
process to avoid opposition. Thus, dialogue should be critical in the goal-setting process. The
second step should involve communication announcing Mike as the new President and Grant as
the Vice President. Bob and Rex should ensure that the communication reaches all organization
stakeholders, including customers, employees, suppliers, investors, lawyers, and commercial
banks. Hence, the firm should consider a communication model that reaches all stakeholders,
such as a media press release, newspaper advert, or through the company's website. Third, to
avoid conflicts, I will consider naming Keith as the vice president for one year to support the
transition process. This will avoid conflicts during the transition stage. Hence at the transition
stage, Mike and Grant should expand their responsibilities to build trust in the family business
fully.
After goal setting, communication, and job shadowing, the next process is responsibility
allocation, trust-building with the management team, and performance review. Mike and Grant
should organize a meeting with the advisory board for induction on management responsibilities.
Each manager should be allocated duties based on skills, interests, and capabilities. The
allocation of duties should be reviewed continuously from time to time. In the future, Mike, as
the President, should solve arising disputes between management and the advisory board. Next,

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Mike and Grant should develop relationships and trust with the management. This should be
done at the earliest stages to avoid organizational conflicts. Finally, the managerial transition
should include a performance review system with key performance indicators for Mike and
Grant. Mike and Grant are responsible for achieving the company's financial goals and the
family business objectives. Therefore, a control mechanism should monitor performance during
the transition process.