Building an Effective Advisory Board
An Op-Ed from the Atlanta Business Chronicle
Access to affordable high-quality advice can enhance the effectiveness of any company. One way for any size organization to obtain high-quality advice is via an advisory board.
An advisory board is a group of independent people who provide advice and support to the owners/management of a business. It is different from a board of directors. It is created to give advice, and unlike corporate boards of directors, advisory boards have no fiduciary responsibilities. Their advice is nonbinding and they do not make decisions. A board of directors serves shareholders whereas an advisory board serves management.
An advisory board can be focused on the total business, on a function such as marketing, on an aspect of the business such as a scientific or technology, or on the market.
Why create an advisory board?
There are a number of benefits to having an advisory board. Members can provide a fresh set of eyes, a big-picture perspective. They typically bring a different set of contacts from yours that can benefit the company. If selected properly, they have experience and skill sets that you can’t afford to buy.
Advisory board members are a great sounding board for new ideas and issues that impact your mission and strategy. They can identify opportunities, provide leads to new customers, and help with access to needed resources. They can serve as mentors for you and your senior management. They can challenge management to consider options for improving the business and hold them accountable.
It is important to set the expectations up front. What do you expect from the board members? What are the areas where you are seeking help? What are the responsibilities of board members? How much time do you expect from them? What is in it for the board members?
Determining who you want on the advisory board.
Experience suggests that the ideal size for a business advisory board for a small to midsize company is three to six people. Fewer than this doesn’t give you enough diversity of opinions and larger may be hard to manage. You can start small and always add people later.
It is typically best to not put paid advisors such as your attorney, accountant or banker on the board. Their advice is always available to you anyhow and they may be too negative toward new ideas or ways of thinking about the business. It is also not a place for family or personal friends/golfing buddies unless they have the expertise you need.
It is important to identify what specific skills you need. Is it marketing, finance, technical knowledge, industry expertise, or experience in growing a business like yours? The ideal member is someone you trust will tell you the truth, is a quick thinker and open-mined, and has excellent communication skills. You want diverse experience and expertise; if everyone thinks alike, you only need one member.
Examples of individuals who could be considered are current or past executives in the industry or related industries, key vendors, important customers, or those with deep domain knowledge.
What’s in it for them?
Ties of personal loyalty are the biggest reason for someone to agree to be on a board of advisors, but there are other reasons to do it as well. Serving enables members to learn about another company or industry, can be prestigious, and provides networking opportunity with the other advisors. They may be given the opportunity to invest in the company.
There are people who are willing to join an advisory board who would not want to be exposed to the potential liability of being on a board of directors.
It is important to compensate the board. Although most will not be doing it for the money, they deserve to be compensated. It also demonstrates their importance to the company, and ensures that they will make every effort to attend the meetings.
Compensation can be in cash, typically $500 or $1,000 per meeting (assuming a 3- or 4-hour meeting) or in stock. If the responsibilities entail more than attending an occasional meeting, it may be appropriate to negotiate an annual retainer for access and assistance between meetings.
Many companies, particularly startup companies, prefer to conserve their cash, and most of the kinds of advisors you will be asking to join the board would prefer stock to cash. If giving stock, it would typically vest over two to four years, with a one-year cliff so that if a board member didn’t work out, they wouldn’t receive any stock.
It may be useful to have one-year renewable terms. That way members who are not contributing can be eliminated from the board and new advisors added.
Operating the advisory board.
A big decision is how many meetings to have. Typical would be two to four, depending on how many members are local and how many need to travel to the meetings. Of course, there can be one-on-one phone calls or meetings with individual members in between the formal meetings. This is particularly important when there is a decision to be made and one or two of the board members have expertise that could be helpful in making the decision.
Often the board meetings will be held over dinner. It can be hard to get busy people together during the work day, and a dinner meeting also maximizes the likelihood that you won’t be distracted by business issues at the office. Scheduling the meetings well in advance will also ensure that everyone will be able to attend the meetings.
An agenda should be prepared for each meeting. The agenda should be forward looking, not backward looking, and should focus on a few core strategic issues. To set the agenda, ask, “what are the biggest unanswered questions facing the company today?”
It is important to provide the board with feedback on what was done with action on their previous recommendations and the results. It is okay to ignore their advice, but they should be told the reasons why management decided not to act on the advice.
I’ll sum up by quoting from Inc. magazine, “Advisory boards provide guidance sharpened by boardroom debate, something individual mentors can’t match.” Recruiting the right advisory board members and using them properly can be a vital contribution to the success of your organization.
Ken Bernhardt is Regents Professor of Marketing Emeritus at Georgia State University’s Robinson College of Business and a marketing consultant. He can be reached at firstname.lastname@example.org »