Given the pace of change and complexity in today’s business environment, Advisory Board s are often underutilized resources for strategic, high-value information and guidance. The pressure to sustain a flourishing business in a wildly chaotic and frantic marketplace falls on the individual leader or business owner.
To thrive consistently over the long haul requires discipline and a reliable way for dealing with new opportunities and unforeseen adversities. The notion that a traditional strategic plan will assist in this fast paced environment is quickly losing momentum. Being strategic, however, has become the new leadership trait that is allowing organizations to outstrip others. One powerful tool to navigate this uncertainty and to facilitate a greater level of strategic awareness is tapping into the power of an effective Advisory Board.
What is an Advisory Board and does your organization need one?
As the name suggests, an Advisory Board is a formally constituted group of independent people who provide high quality, objective advice to the business owners in areas of strategic importance.
A strong Advisory Board is a powerful tool to support decision making, especially for family owned, entrepreneurial or SMEs. It’s smaller organisations like these who benefit the most from the expert guidance of an Advisory Board without the expense or formality of the board of directors. This outside advice is especially beneficial for areas you would otherwise not receive advice.
Depending on its specific purpose an Advisory Board can have a broad focus or a narrower one. For example, will the Advisory Board be concerned with ‘big picture’ organisation strategy and enhancements, or are the advisors real stakeholders providing their experiences on a specific program and how it may be improved?
It is important to determine what the focus of the Advisory Board should be, and ensure this is well understood, before it is formed.
Some of the roles and responsibilities for Advisory Board members might include:
- A deep understanding of the organization and its environment
- Offering insights and resources to complement discussion raised by the owners
- Explore new business ideas or directions (with the benefit of distance from day-to-day operations)
- Consider ways of improving operations and organizational efficiency.
Sometimes a Board of Directors may choose to create an Advisory Board with a specific advisory role, whilst making it clear the board of directors has ultimate supervisory and fiduciary responsibility for all of the affairs of the organization. The Advisory Board does not share these responsibilities (more on that later).
So, what are some situations that could benefit from an Advisory Board ’s expertise?
Consider the following examples offered by Australian Institute of Company Directors:
- Guiding startup companies in a rapid growth phase
- Creating a new product line;
- Moving into a new market segment or industry;
- Moving into a new geographic area;
- Making the transition from private to public and perhaps listing on a stock exchange;
- Restructuring and repositioning a company in the market;
- Implementing major new technology within the organisation;
- Staving off a serious competitive threat;
- Analyzing a potential takeover target.
For nonprofits, there are a few different types of advisory committees explored by Blue Avocado which advise, provide influence or fundraise, in support of the existing Board of Directors
Recap: What's the difference between the Board of Directors and an Advisory Board?
An Advisory Board is different to the Board of Directors in many ways.
Firstly, it is not responsible for the running of the organization, nor is it regulated under the relevant country’s Corporations Act legislation, or in corporate governance codes. Consider the advice given from the Advisory Board is non-binding guidance.
Advisory Board members are not formal directors of the organization in the traditional sense and they do not serve a governance function or represent shareholders or other stakeholders. In the same way, Advisory Board members have no authority to act on behalf of the organization. There is far more information on the legal distinctions between the two Boards here.
Most importantly, Advisory Board s are not there to tell you how to do things and they are unable to issue directives. They are there to ask questions that you hadn’t thought of asking, and to open up the conversation so that you can be strategic.
An added benefit to having an Advisory Board is it can double as a ‘testing-ground’ for potential formal directors. These individuals are not only familiar with the organization, its strategic objectives and key people, but the quality of their contribution has been established. Is this individual going to add strategic value to the main Board? What’s more, it’s likely they can contribute sooner to formal Board discussions faster than an ‘outsider’.
Creation, development and operation of your Advisory Board
Getting clear on your Advisory Board's membership, size and structure
First thing’s first: Avoid creating an Advisory Board if there is no time to work with its members. Considerable ‘feeding’ is required, and proper meeting convention needs to be established if the Advisory Board is going to maximize contribution (more on that in a moment). Do you have time, staff support and resources to support this new group?
Secondly, you must be clear on the purpose of the Advisory Board and what you hope it will achieve. This includes clarity around the duration of the position, guidelines for membership and any structures/policies from which the advisory group interacts with the formal board of directors (if any) and organization members.
Ask the question: “Why are we establishing an Advisory Board and what do we want out of it?”
Effective communication of a clearly defined purpose will contribute to the success of the Advisory Board. This clarity will help determine the skills, knowledge and experience needed during member selection.
In order to create a high performing Advisory Board, consider incorporating:
- People from industries that are different to your organization’s primary industry
- People with experience based on the direction your business wants to travel
- People with experience working with larger businesses; greater revenue, complexity etc.
- People who are willing to ask questions – not those who will tell you how to do things
The bottom line is this: choose people who match your needs, have relevant expertise and enough time to commit to the Advisory Board.
What’s the right size for an Advisory Board?
The value of an Advisory Board is determined by its members and their experience, not necessarily its size. For example, a high performing Advisory Board can have as few as 2-3 people who meet once a quarter. Then again, the Advisory Board ’s mandate may require representation from many constituencies. Again, this depends on the purpose of the Advisory Board.
But like a board of directors, an Advisory Board should be built carefully no matter its size. Consideration should be given to the current and nearer-term needs of the organization, working relationship of the board members and others with whom Advisory Board members will be working. Some suggest ‘beginning’ with a single Advisory Board leader and to grow the board from there until it reaches its ultimate number over time.
Organizing Advisory Board Meetings
Advisory Board members can be busy people. Meetings should be scheduled well in advance to minimize schedule conflicts. Before a meeting takes place, and where appropriate, provide Advisory Board members with pre-reading.
This helps to ensure ‘background information’ doesn’t take up too much time during the meeting. But be mindful of the material you provide: offer enough information for members to form a suitable foundation of strategic information on which they can act without making the reading too long or onerous.
Running an effective meeting is always crucial, and in this case best practices apply: utilize an agenda and adhere to that agenda. Poorly organized, or frequently cancelled meetings implies a lack of commitment. The Advisory Board members are likely to drop their standards and invest time elsewhere.
Always respect, honor and recognize the work of your Advisory Board. If the experience is less than rewarding, the board members are likely to feel ignored or superfluous.
Setting expectations for your Advisory Board
There are two key briefs to give any Advisory Board member.
1: 'You are here to ask us questions, not to tell us how to do things.'
2: 'You are here to ask us questions and not to tell us how to do things.'
If your advisors understand this, they can be an invaluable resource for growing your organization. The Advisory Board can provide objective guidance, competitor analysis, trend spotting or identifying new market forces that may impact your organization, identifying new strategic employees for the next phase of your growth or even getting introductions to new, influential stakeholders.
As soon as you think you have your business right, and you stop asking strategic questions, you have begun to shut your business down. The role of the Advisory Board is to continue to ask questions and offer access to other networks and influencers to help your business adapt and grow, and to ensure you are being strategic now and into the future.
Here are a sample of some of the great questions that Advisory Board members should be asking:
- If we were a company that was 10 times larger than we are now, what would we have to put in place to facilitate this now?
- What have you already decided is your business, that is limiting what your business can be?
- What can we change here that will create a different result?
- What if there was a different way of doing this?
The gift of the Advisory Board is the questions the members are willing to ask, that no one else would have thought of asking. These questions will challenge assumptions and judgments about what the business is or is not and will facilitate the business owners and executives to sense what else is possible.
How long should an Advisory Board Member’s Term be?
The answer to this question depends on the purpose of the Advisory Board. If it was created around an ad hoc program or initiative (let’s say 9-12 months), then the term limit should reflect the natural conclusion of this program.
If the Advisory Board has been established to provide guidance over the long term, appoint members to a specific term (one, two or three years for example).
Term duration is an important factor when an Advisory Board is first being established: the costs and benefits of the board are still unknown. Or, for example, when you hope to expand the Advisory Board beyond the members you are familiar with.
Common challenges with Advisory Boards
Communication and Commitment from Management and Leadership
The real value of an Advisory Board cannot be captured if it lacks structured communication and engagement. If the Advisory Board is set up primarily to advise the CEO, the CEO’s involvement must be obvious and constant.
In a similar way, very infrequent meetings may put too much distance between the Advisory Board members and the challenges of your organization. This may create a lack of routine involvement, such that the Advisory Board may not have the pulse of the organization.
It’s important to supply information, such as financial and other reports, in between Advisory Board meetings to keep all members informed.
It’s also worth remembering that these individuals are out looking for opportunities to promote your organization.
Unclear Board Mandate: Letting Weeds Strangle the Garden
The Ivy business Journal encapsulates the problems that can arise when an Advisory Board does not properly understand its mandate.
“A lack of definition in … the Advisory Board ’s mandate is likely to lead to a disorganized board that will, at best, provide less value per dollar or hour invested than a well-mandated one and, at worst, will ensure a frustrating waste of time for the enterprise and the Advisory Board members. Care must be taken to avoid confusion at the boundary between Advisory Board and board of director activities. A board of directors could feel disenfranchised when a CEO and the Advisory Board make a decision that is clearly in the directors’ areas of competence. An Advisory Board, particularly one in a public company, must not be allowed to usurp the responsibilities and authority of the directors. An effective Advisory Board, providing non-binding but informed guidance, can be a tremendous ally in the quest for superior corporate governance.”
How to encouraging an effective Advisory Board
To get the most out of your organization's Advisory Board, maintain clarity around its purpose, roles or scopes and expectations. The ultimate aim of having an Advisory Board is value creation in whatever dimension of your business matters the most. If the Advisory Board is not creating value, if it is underutilized or frequently overstep its boundaries, reconsider who sits on it or whether having one is the best means of achieving the purpose.