What constitutes an advisory board? Who should participate on an advisory board? Is an advisory board the right fit for my business? While most private companies aren’t required to have a formal board of directors unless investors or their banks insist, advisory boards bring value to the business. Even if you are the sole owner of your company, there are many reasons why you should consider setting up an advisory board.
Definitions.net identifies the differences between a formal Board of Directors and an advisory board: “An advisory board is a body that advises the management of a corporation, organization, or foundation. Unlike the Board of Directors, the advisory board does not have authority to vote on corporate matters, nor a legal fiduciary responsibility.”
Why Engage an Advisory Board?
A well-selected advisory board adds significant value to your business. As a rule, any business can benefit from a group of wise and experienced outsiders who mentor, share successes and problems with the entrepreneur, and act as a sounding board. As an entrepreneur, you wear many hats and some hats fit better than others. An advisory board fills the gaps and provide guidance in areas where you have less knowledge and expertise. Alternatively, you can form an advisory board for in-depth expertise in a particular area, such as forming a Medical Advisory Board if you are developing a new drug or medical device.
Considering an Advisory Board? Start Here.
Who you are? Where you are in your business? What exactly do you need in terms of advisory services? Ask these types of questions to refine your thought process on an advisory board. Keep in mind, if you are not going to listen to the input of your board, don’t bother. An advisory board only works if you’re open to their suggestions.
Some questions to ask yourself as you consider implementing an advisory board:
- Is your business growing? Do you feel you need input in areas outside your expertise such as sales and marketing or more technical fields such as engineering and accounting?
- Are you considering a geographic expansion of your business? Are you looking for specific expertise in the expansion process itself or knowledge in the new geography?
- Do you need help on the execution side of your vision?
- Is industry upheaval requiring more specific industry insights?
- Are you preparing for an acquisition, product launch, or other significant business change and seeking to avoid missteps?
- Is your business in a rut? Are you out of new ideas?
- Has a new competitor moved into your market and you need help responding to the new competitive landscape?
- Is business running smoothly and are you just looking for suggestions to incrementally improve or monitor progress?
- Are you willing to be open and honest about your company with outside advisors or will you hold back?
- Can you deal with honest feedback – no matter what?
- Can you accept change for the business, even if it goes against your likes and wants?
- Are you organized enough to follow through on planning and preparing for the advisory board meetings to make productive use of board members time?
- Are you primarily looking for mentors, a sounding board, accountability, help in dealing with issues, or a specific issue?
- Are you willing to broaden your thinking based on the insights of the advisory board?
I repeat, if you aren’t going to listen (even though the final decision to implement the advice rests with you) then don’t bother!
Understanding The Who and What of the Advisory Board
Who should sit on the advisory board?
After defining the purpose of the advisory board, the first characteristic to consider is expertise and experience for the role; members who can bring an outside perspective and judgment. Defining what is outside may require thinking broadly. Board diversity brings value, as a Credit Suisse Research Institute study of 2,360 companies showed. Those with at least one woman on the board performed 26% better than comparable companies did. Seeking out divergent opinions is important. Depending on the reason for the advisory board, types of diversity might include differences in geography, social status, technical skills, risk-taking temperament, industry, gender, national origin, etc.
Like your company culture, diversity on your advisory board brings value, whether better understanding your customer, your business, or just improving financial performance. In a diverse board of advisors, not everyone has to be an extrovert – just willing to state their opinion. Often introverts bring additional insights. Using a tool like DiSC or Myers Briggs to assist in communication across diverse members might also be helpful.
While each member of the advisory board should be committed to your success, if you seek only those who agree with you and offer a similar perspective, there’s not much point in forming a board of advisors.
What does an advisory board look like?
A highly effective advisory board needs chemistry and operates within a culture of trust. Effective boards function with dissension and candid conversation. This isn’t easy. Susan Scott’s book “Fierce Conversations” provides tips for getting there.
Advisory boards are not ad hoc events. To be respectful of members’ time and gain insights, highly effective boards of advisors have:
- A focused objective.
- A definition of quality participation and contribution expected.
- A defined term of service (2 or 3-year terms).
- 3 to 8 members.
- A deep respect for the knowledge brought by each member.
- Meetings regularly (quarterly) for a specific duration with a formal agenda and a 12 to 18-month schedule.
- Agendas and needed prep work distributed with adequate time for review.
- A standard format for materials provided that is of an appropriate quantity and quality to serve its purpose (unbiased summaries and quick visuals).
- A trained facilitator or chairman keeping focus and timetables.
- Periodic communication on “hot topics” and regular business updates.
- Opportunities to develop personal relationships (dinners, events, outings).
- A compensation plan (ranging from paying for travel and lodgings to actual money).
- Members that aren’t employees; outside professionals minimize any self-interest.
- A plan to disband after completing objectives and retire members who are no longer contributing.
Creating the Advisory Board
After the self-analysis and formalizing the process, you are ready to draft the charter that will clearly communicate the expectations for the board of advisors. Be thorough in your thought process so expectations are clear to those you will approach to join the advisory board.
The charter might look like this:
My company seeks to improve profitability and growth through a six-person board of advisors. Individuals who can contribute will bring technical and industry expertise and have a record of accomplishment. The responsibilities of the advisors:
- Contribute expertise and ideas to support growth and profitability, as well as the ability to address other issues as they arise.
- Attend four meetings per year, at least one in person.
- Review monthly reporting package and be available for questions.
- Prepare for the quarterly meetings in advance.
The term of service is at least one year, and compensation includes travel and lodging expenses and a stipend of $1500 per year.
The charter may be expanded if there are specific additional considerations (for example, reviewing and commenting on FDA paperwork in the case of a new drug).
To recruit for the advisory board, use your network and those of colleagues. Seek out potential members while keeping in mind the criteria previously identified. A high-functioning advisory board can move your business forward quicker and more successfully than you alone are likely to do. Giving serious consideration to creating an advisory board is the right move for many companies.