Counsel Without Consequence: Testing the Value of Your Informal Advisers
Photo: USAID Africa Bureau, Public domain, via Wikimedia Commons
Almost every founder-led business has one: a small circle of people whose opinion the owner trusts above the board's. A former colleague, a longstanding accountant, a friend who sold a business once, an investor who never took a seat. The advice is often excellent. That is precisely what makes the arrangement so difficult to examine.
The kitchen cabinet is not a governance failure in itself. It becomes one when nobody can say, precisely, what it is for, what it is not for, and who is accountable for the difference.
What informal counsel does well
It should be said plainly: an owner who gathers two or three experienced people for a candid conversation is behaving sensibly. Informal advisers offer speed, candour, and freedom from the performance that formal meetings can induce. They can be consulted before a position is fixed, which is when advice is most useful and least expensive to act upon. They are not obliged to protect a budget, a function or a legacy.
Much of the value, though, is relational rather than analytical. A founder who is isolated — and many are, whatever the organisation chart implies — benefits from a room in which they can think aloud. That is a real need. It is not, however, the same need as governance, and confusing the two is where the illusion begins.
Three absences that matter
Informal advice is distinguishable from formal governance by three absences.
No decision rights. A kitchen cabinet recommends; it does not resolve. That is appropriate, provided everyone understands it. Trouble arises when an owner treats a favourable response from trusted acquaintances as equivalent to board approval, and then discovers — during a refinancing, a dispute, or a family disagreement — that no such approval exists.
No conflict checks. Members of an informal circle are frequently connected to the business commercially: the adviser's firm audits it, the friend's company supplies it, the former colleague holds shares in a competitor. None of this disqualifies them. But a governance process requires those interests to be declared, recorded and managed. A conversation over dinner has none of that machinery.
No recorded dissent. This is the most consequential absence. Where advice is unminuted, the alternative view disappears. Six months later, when the acquisition has underperformed, no one can demonstrate that the risk was raised, weighed and accepted. The organisation loses its institutional memory of its own judgement — and with it, the ability to learn.
A diagnostic for owners and non-executives
Five questions will usually establish whether informal counsel is strengthening judgement or masking a gap.
- Can you name the last three occasions on which your informal advisers disagreed with you, and what you did as a result? An adviser who has never dissented is a mirror, not a counsel.
- Would any member of the circle have a disclosable interest in the decision at hand? If the answer is unclear, the circle is too loosely defined.
- Is the same question being taken to the board, and if so, in what order? Advice sought after the board has decided is ratification; sought before, it may be a shadow process.
- Who else knows the advice was given? If the answer is nobody, a non-executive cannot test it.
- What happens when the founder is unavailable? An arrangement that depends entirely on one person's relationships is not an advisory structure; it is a personal network.
None of these questions requires abolishing the circle. Each requires it to be described honestly.
Where the illusion costs most
Three situations concentrate the risk.
Related-party transactions. Where the business transacts with entities connected to the owner's advisers or family, the absence of a documented, independent process is a standing exposure. Buyers and lenders will look for it, and its absence will be priced.
Succession. A founder who has relied on informal counsel for a decade often hands over to a successor with no equivalent network and no formal mechanism for building one. The informal circle does not transfer. The board, if it functions, does.
A sale or external investment. Diligence asks what the board considered and when. A process that exists only in recollection is difficult to evidence and easy to misread. Advisers who were telephoned are not a committee that minuted.
Making informal counsel legitimate
There are practical ways to keep the value and remove the illusion.
Define the circle in writing — its purpose, its members, how often it meets and to whom it reports. Require a short declaration of interests at each meeting, recorded even if not acted upon. Keep a one-page note of what was discussed, what was advised and what the owner decided, and make it available to the chair or a designated non-executive. Where a subject is material, route it to the board first and bring the informal view as an input rather than a verdict.
For non-executives, the obligation is one of polite persistence. Ask what advice the owner has received, from whom, and on what basis it was accepted. Not to police the relationships — that will fail — but to ensure the board is not being asked to endorse a conclusion it did not reach and cannot examine.
A closing view
Advisory counsel and governance are not rivals; they answer different questions. Informal advisers help an owner think. Governance makes the organisation answerable for what it decided. A business that confuses the warmth of the first for the assurance of the second will, eventually, be asked to explain the difference by someone less sympathetic than a friend.
