Knowledge Base - Best Practices
Is an Advisory Board Right for You?
No Business is too small to benefit from an Advisory Board. Advisory Boards should not be confused with a formal Board of Directors. An Advisory Board does not have the legal requirements or fiduciary responsibilities imposed by Sarbanes-Oxley on public companies.
As the name implies, Advisory Boards are there to advise. The CEO has no legal obligation to follow their advice. However, if a board is made up of trusted professionals, following their advice is normally not a problem.
What’s the Value:
- An Advisory Board is there to help you, not control you.
- A fresh set of eyes.
- A strategic, big picture perspective.
- Experience to help you navigate through the minefields of business.
- A different set of contacts that can benefit your company.
- Credibility, especially for young companies.
- Skill sets you may not be able to buy.
- Accountability for the CEO.
10 Steps to Establishing an Advisory Board:
- The CEO should start by defining the objectives for the board. Why do you want an Advisory Board? Typical objectives are: to help the company get to the next level; to provide leads to new customers; to be a sounding board for new ideas; to serve as a mentor for the CEO’s professional development; to provide skill sets missing in the management team; to understand the strategic vision and hold management accountable.
- Develop a profile of the members you would like to attract i.e. a financial person with IPO experience; a sales leader from the consumer products industry; a CEO who has already been where you want to go.
- In most cases, I believe in not including people whose advice you already receive. You may want to invite your accountant, attorney or banker to some of your meetings but I would not include them as members of your Advisory Board. Also, this is not the place for your golfing buddies unless they also happen to have that unique experience you need. You want people who can provide objective advice.
- Determine how many members you would like on your Advisory Board and if they should be local. This will impact how you interface with your board.
- Start with your current contacts. Who do you know that you respect and trust and who also meets your profile. Share the profiles with trusted contacts and ask who they recommend.
- Make a list of potential members.
- Define your expectations for your board members i.e. how often will you meet; how often will you communicate between meetings; how will you keep them informed.
- Decide how you will compensate your board. While most people who serve on Advisory Boards don’t do it just for the money, compensation is important because it sends a signal that you are serious. Advisory Board members can be compensated differently depending on the circumstances; hourly, a per-meeting fee, monthly retainer, stock options or a pay-out contingent on achieving a goal could all be appropriate. Decide what is right for you.
- Develop “your pitch” When you pick up the phone or meet with a potential Advisory Board member, you need to have an organized story to tell. What are your objectives, what’s in it for them, what are your expectations of them?
- Finally, with all this preparation, all that’s left is to close the deal. Ask for their help and get them to say yes.
Now that you have your Advisory Board, how often should you meet and how to get the most from their involvement?
- You might consider a one-on-one meeting with each board member to get them up to speed before the first group meeting. Ask them how much background information they would like and what the best way to communicate with them is.
- If your board members are local, a quarterly group meeting may be a good starting point although circumstances might dictate more frequent meetings.
- If members are not local, the logistics of getting everyone together might be a problem. In that case work one on one with the members during the year on areas of their expertise and get the group together once or twice a year. I believe the synergy of the group can bring increased value.
- Prepare for each meeting. Publish an agenda in advance. Certainly financial results should be part of each meeting, but consider having each of your key manager’s report on their area on a rotating basis.
- Be open and honest with your Advisory Board. Be willing to expose your weaknesses. You picked them because you trusted them and hopefully they are better than you in certain areas. They are there to help you and your business become more successful.
- Meet consistently, not just when you have good news to report. This is not about getting pats on the back. It is about growing and improving your business.
- Determine what information you will provide to your Advisors in between meetings and do it consistently. Provide feedback on action taken and the results of their suggestions.
- Use your board members. If you have questions between meetings, give them a call or send an email. They are committed to helping you.