Advisory Boards - an Overview
A thoughtfully selected and well-developed advisory board can be one of the most effective tools in helping any company reach its strategic potential. However, many boards fail to be effective and business owners are rightfully hesitant to invest the time and energy into something that has a mixed reputation for success. To help you decide when and where to begin, it is important to understand what an Advisory Board really is and how it can be utilized to drive performance and optimize opportunities.
An Advisory Board should consist of a group of carefully selected advisors. They should be chosen for their knowledge, expertise and interest in your business. They should be expected and encouraged to provide feedback, ask challenging questions and offer ideas and advice to maximize the potential of your company.
Why should you consider forming an advisory board?
Advisory boards can add significant depth of knowledge and experience to the management and oversight of a business. They can be used to:
- Provide guidance or expertise about areas of business management that are currently not well understood or practiced effectively in the organization;
- Serve as mentors or coaches to current management team members and to younger members of the company (such as younger family members who may be identified as successors);
- Act as a ‘sounding board’ for new ideas and strategic initiatives;
- Minimize the risk associated with new ventures by providing insight and additional expertise;
- Serve as a ‘buffer’ between the family and the management of the company;
- Provide a stronger link with the local community or an identified target market;
- Increase the accountability of the reporting managers.
How does the advisory board differ from a Board of Directors?
The advisory board rarely consists of shareholders (other than those family members or owners who represent the business or who are in a senior management position). The advisory board members do not have the same legal or fiduciary responsibilities as a board of directors as their role is to provide advice only – not oversight. Any decisions made by the management team or company directors as a result of a recommendation by the advisory board still needs to follow the protocol for such decisions as described in the company’s operating agreement or bylaws.
In addition, professional company advisors such as your bank manager, CPA or attorney should not be members of the advisory board. These professionals are often represented on the board of directors of large companies, but because their professional interest is often very different from the issues that the advisory board would address, this is not the best use of their time or skills.
How do you find the right Advisory Board Members for your business?
First, determine what the future goals of the company are and what skills will be necessary for the company to achieve these goals. Then, assess what skills and expertise already exist in the management team – do you have the skills necessary to undertake and successfully complete the strategic initiatives that will lead to meeting your goals? If not, what skills do you need? What are the priorities?
Next, identify those people who might be able to bring the necessary skills and expertise to your organization. Avoid identifying friends and family. Look outside of your normal circle of acquaintances and seek people who might really add value to your business.
A process for identifying and inviting potential advisory board members might look like this:
- List the skills and attributes needed (you may choose to use a matrix for this exercise).
- Brainstorm potential advisory board members who might have the skills you need.
- Agree upon the individuals you would like to approach. What are your priorities?
- Begin with the soft approach – a lunch meeting to float the idea and gauge interest. This is not an invitation, but simply an initial exploration of the possibilities. Be prepared to discuss the role and expectations.
- If a prospect is interested in exploring the idea further and you and your team agree that this is a good prospect, send a letter of invitation. This letter should clearly explain the role of the board, the role and expectations of members, the meeting schedule, sample agenda, the term of membership, the pay and reimbursement of expenses, etc. Some companies may use an application form for potential Advisory Board members to complete prior to extending an invitation.
- Finally, the management team (or CEO/general manager) needs to be prepared to fulfill their responsibilities to the advisory board. This will mean ensuring they are kept informed to the level agreed, sending out information prior to the meeting, acting on agreed action items and finally, including Board members in the celebration of company successes.
What are important protocols for facilitating and maintaining an advisory board?
In general terms, most advisory board structures are similar to this:
- Meetings are held quarterly or semi-annually.
- Members are paid a small amount per meeting – often between $500 and $1000 per half-day meeting.
- Members can expect to have their travel expenses reimbursed.
- Members can expect to receive information prior to the meeting (usually a week in advance).
- Members should receive feedback on their recommendations – either a report of an action completed or a report on why the decision was made not to complete an action.
- Members should be thanked for their time and effort – apart from their small stipend.
How do you ensure that you have an effective advisory board?
One reason Advisory Boards suffer is that they become repetitious and stale. A Board that always has the same members and same meetings time after time can lead to apathy and ineffectiveness.
Instead, invite members for a one-year term. They will serve for that period and at the end of the year you send all of the members a note thanking them for their time and efforts. As you close out the year, you might want to include a short report highlighting the year’s accomplishments. Let them know that a new advisory board will be formed. As you look forward you can then invite back only those members who have been highly effective on the board and who will continue to have value to you and the business.
As you reform next year’s board, take time to revisit your original list of potential members. For each, evaluate how they might help the business as it faces new issues. You may want to recreate your advisory board matrix and look for additional candidates that bring different skills to the table.
Another reason advisory board’s fail is ineffective meetings. Members who do not understand their role or what is expected from them can derail conversations and detract from the business of the board. A board charter can help keep your meetings productive because it will define - in writing - the expectations, roles and responsibilities of those involved in the meetings. The document doesn’t need to be lengthy and it can be a helpful way to make sure everyone understand the “rules of the road”. The charter might include these types of written statements:
- meeting parameters, structure
- roles and responsibilities of members and staff;
- expected behavior, how conflict will be managed, etc.
- create processes for assessing how well things are going.
Let advisory board members know they are appreciated.
Keep in mind that you are asking for an investment of time, energy and expertise when you create a board of advisors. They will give gladly and will continue to give as long as they know how much you appreciate their participation.
- Provide some time for socializing if this suits your Board – a lunch or a dinner or at least a catered break.
- Celebrate successes – Advisory board members like to know when they have been helpful and to know that the company is doing well.
- Thank people for their time.
Where can you get more information?
If you would like more in-depth information on how to set up an effective advisory board or would like help in any other aspect of running a family-owned or closely held business, please contact us.