Running a business single-handedly is a formidable task, one that hardly anyone is capable of doing, especially nowadays, in the era of rapidly growing competition and volatile economy. That is why seeking advice is a solution adopted by many entrepreneurs. Although advice can be obtained from various consultants, a board of directors, or yet other sources, an increasing amount of attention is paid to advisory boards. What is an advisory board and what is its role?
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What is an advisory board?
To put it simply, an advisory board is an informal group of skilled and experienced professionals that are supposed to provide the management with strategic advice and aid needed to facilitate the company’s growth. These external specialists — i.e. advisory board members — act as trusted consultants (or a sounding board) and assist people involved with a given company (e.g. the company directors, owners, or shareholders) in pushing their business in the strategic direction. An effective advisory board offers assistance in a wide range of actions, including marketing, managing human resources, and influencing the direction of the enterprise’s development.
The function of an advisory board
Before deciding to set up an advisory board, you need to make sure its role is clearly defined. A well-structured advisory board is not supposed to attempt to interfere with the competences of a board of directors; instead of causing confusion, the two formations should complement each other and by this lead to strengthening the company’s position.
There are several differences between an advisory board and a board of directors. First, as we already mentioned, an advisory board is an external group that, unlike a board of directors, is appointed by the company, not by its shareholders. What is more, advisory boards do not have the right to vote on corporate matters nor are they subject to all sorts of legislated liabilities, fiduciary and other duties. In simple terms, an advisory board member is a person that typically does not take part in the decision-making process, but remains within the boundaries of the advisory sector, offering professional guidance.
Also, it may be easier for a group of external specialists to try to bring about some changes that might be crucial to accomplishing the company’s business goals; an equivalent idea proposed by the directors may result in tensions between the directors and the senior management team.
It is also worth pointing out that many entrepreneurs — especially those who have entered the market relatively recently — do not want to hand over the fair share of their control over the company to directors who are often inclined to demonstrate their authority and are exposed to a multitude of formal responsibilities.
On the other hand, very frequently internal directors or stakeholders (that can be CEOs, lead investors, founders, senior executives — all of which are people connected with the business) still need someone to rely on when it comes to modifying the way they govern the company.
Main responsibilities of an advisory board
If you try to pinpoint the reasons for establishing an advisory board in your company, you may want to have a look at a wide scope of responsibilities that such experts are ready to take on. These may include:
- providing valuable, non-biased insights into a particular aspect of the business (focused input),
- proposing new business ideas,
- offering wise counsel on problems and issues raised by the management or owners,
- boosting strategic thinking by helping entrepreneurs understand the market and its trends,
- supporting the development of governance framework to improve management practices and promote the company’s sustainability,
- monitoring the company’s performance,
- participating in succession planning,
- promoting critical thinking in order to help the company tackle various difficult situations and crises.
The list (by no means an exhaustive one) clearly shows that advisory board members need to have impressive experience and thorough knowledge about many aspects of business, for example, marketing strategies, sales techniques, business norms, customer service, and so on.
Advisory boards — key considerations
In order to ensure success of your collaboration with an advisory board, several vital issues need to be taken into careful consideration:
- Advisory board’s mandate. Defining what exactly is being sought from the advisory board is vital if you do not want to end up with a disorganized board. Getting advisors that will not be able to provide enough value may eventually lead to a waste of your time and resources.
- Size. The size of an advisory board is important when it comes to the efficiency of the information delivery. With the aim of avoiding managerial issues that often occur in case of large boards, it is reasonable to start with one advisory board leader and then evolve gradually to the final number of members (that, if possible, should not exceed 8 people).
- Organizing board meetings. The effectiveness of an advisory board depends hugely on the way their activities are organized. This is why it is necessary to hold regular advisory board meetings during which the board members — who have to be well-informed about the purpose of those meetings — are supposed to provide valuable input.
- Term of membership. As advisory board members sometimes get too comfortable with their positions, it is advisable to appoint them to perform their functions for a certain amount of time (e.g. one, two or three years). This may ensure their active involvement and true dedication to the company.
- Compensation. There are many reasons why members of an advisory board serve a given company or an enterprise. Some people do it as a matter of personal favors, out of the need to derive prestige or win a network of promising connections, or for financial benefits (such as cash or stock options).
An effective board of advisors in your company
Whether you are a CEO of a large organization or whether you run a modest local company, one of your major objectives is probably to boost your business performance. This is precisely what getting help from an advisory board may contribute to. Relying on specialists whose expertise, experience and skills attest to unquestionable competence can help you build a successful and goal-oriented enterprise.
