What you need to know about making sound investments that are ethically sound.
What is an Advisory Board?
An advisory board is a committee of people selected by a company to provide defined advice and information in an informal and flexible manner. Effective advisory boards provide strategic and compliance guidance, as well as know-how that is contextualised to the particular business. Advisory boards may function through meetings (like a board of directors) but they do not have decision-making authority and owe no duty as directors of the company.
Steps to Establish and Operate an Advisory Board
Consider the appropriateness of an advisory board for your business and its readiness to have one.
Understand your reasons for wanting an advisory board.
These might include:
- Valuable business insight and oversight to help improve success
- Specialist advice for a specific area of interest (e.g. entry into new market)
- Early stage market validation
- Succession planning and/or to become investment ready
- Increasing the professionalism of your business
Determine whether you and your business are ready for an advisory board:
- Do you have a reasonable idea of what you want to achieve?
- Can you easily share information that portrays your situation?
- Are you open to new ideas and insightful questions?
- Do you enjoy others contributing to your success?
Establish the purpose of having an advisory board:
Since advisory boards provide defined advice and information, you’ll need to establish the area of focus and specific objectives for your advisory board. This provides the purpose and scope for which it will operate and how it will function.
Define expectations for your advisory board:
Clearly establishing what you are trying to achieve is imperative to a successful advisory board. Which area of the business will most benefit from external support? What do you want to achieve? Aim to lock down your own expectations of your advisory board – including what it will do and how it will function – before you start recruiting members. (Formal agreement between everyone will likely happen after the advisory board is actually formed.)
Advisory board members have no organisational influence and no legal liability for their role. Nor are they usually recognised publicly for their work. Given this, you’ll need to determine the “hooks” or mutual benefits for them. Be clear at the outset about this – why would someone want to join your advisory board?
Composition, functioning, roles and responsibilities:
It is really important to select a balance of individuals to join your advisory board and ensure robust but constructive debate that will lead to results. Don’t just tap personal contacts. Advisory boards need a good combination of background experience, skills, qualifications and personal qualities (such as shared vision, openness to tackle challenges, ability to get over disagreements); and consider a balance of individuals with high clout and those with genuine expertise related to your business objectives. Also think strategically and longer-term about who is a good fit – will you need investment or look for a merger down the track?
With the purpose and objectives of your advisory board in mind, consider how it may function best e.g. through meetings, direct conversations, technical input into documents circulated electronically, and so on.
If your advisory board functions by way of meetings, it should have a chair to facilitate and lead as well as procedures for the conduct of meetings. The business owner is not usually the chair of advisory boards because it may distract from the absorption of objective advice. The chair is responsible for ensuring that everyone contributes optimally to achieve the agreed expectations of the business.
- What is your area of focus and business objectives?
- What specific skills will help your situation and what you’re trying to achieve?
- Are there complementary skills / experience that could further your objectives?
- What soft skills will champion cohesion among the group and with you?
- High clout vs genuine expertise?
- How many advisory board members are you seeking?
- Who will be involved from management?
- How could it function to best harness the expertise of the group and to further your business objectives?
Determine compensation (if any):
Compensation for your advisory board members will depend on who is recruited and how involved you need them to be. A number of options exist such as voluntary (no monetary compensation), pay per meeting, a monthly or quarterly retainer, equity in the business, or a combination of the above.
Determine a recruitment and onboarding process:
Think about how you’re going to identify, access, recruit and get onboard individual members to your advisory board. Will you approach people with a phone call or by suggesting a coffee meeting, or will you engage in a more formal interview process?
To bring your advisory board members onboard, create a briefing document which includes the following:
- Purpose of the advisory board
- Business objectives
- Who the (prospective) members are
- Proposed commitment of members (time, scope, etc)
- Proposed structure and functioning of the board, including roles/responsibilities
- Proposed procedures for meetings (if any)
- Proposed procedures for dispersing or exiting the advisory board
Convening the first meeting:
Some advisory boards may not function through meetings but for those that do – in the first meeting it’s a good idea to share your vision and hopes for the business. That way, everyone is on the same page and members of the advisory board get a flavour for your leadership within the business. Invite input from the advisory board members.
At the first meeting, the following should be agreed:
- Roles and responsibilities of the board members, including the scope and level of commitment – will membership simply mean turning up to meetings, or will it include additional work as well? Do individuals act in their sole capacity or as representatives of their organisations?
- Functioning of the advisory board – will it be self-governing or chaired by one of the members with coordination support from management; or will it operate by way of direct conversations between members and management?
- Procedures for how the meetings are run. Depending on your business objectives, meetings could look like workshops that involve collective problem solving and brainstorming or they might be more conversational.
- Procedures for dispersing or exiting the advisory board.
Minutes should be taken and circulated to top management after all meetings.
Keep them informed:
However your advisory board functions, keep members informed. Advisory board members must not be unwittingly exposed to liability as full directors. As the business’s representative you must have absolute discretion to accept or disregard any recommendations made by your advisory board. But the advisory board might need access to a range of company documents and records to operate effectively. Be sure to know what their expectations are for this. Also keep them up to date with developments that happen in the business.
Review practice of the board:
Review how the advisory board is functioning, and whether it is doing so effectively. How on track is your business to meeting its goals? Is the composition of the board still relevant? Is there still mutual benefit in having an advisory board?
At some point you might need to alter the arrangements with your advisory board. Reasons might include:
- There’s no longer a need for your advisory board (e.g. the purpose for which it was set up has been achieved)
- A need to transition to a formal board set up arises
- A need to replace member(s) due to under par performance
- A change in the type of advice or skills required for your advisory board
Should you need to replace an advisory board member be sure to communicate and follow the exit process with this individual. Reputations (both yours and theirs) are on the line. Provide an opportunity for feedback from those who leave through an exit interview.
Remember these key points:
- Be clear about purpose
- Choose the right people
- Set expectations
Actions to Take to Establish an Advisory Board
|1. Determine the business objectives for your advisory board||Business objectives help shape the purpose, composition, role and functioning of your advisory board|
|2. Determine criteria for the composition of your advisory board and identify possible members||Setting criteria allows for an objective assessment of candidates|
|3. Determine compensation for advisory board members (if any)||Helps define their expectations and organisational budgets going forward|
|4. Determine the recruitment and onboarding process||Processes allow for timely and effective implementation and helps define expectations|
|5. Determine how your advisory board will function||Helps set expectations and determines the degree of involvement from advisory board members and management|
|6. Recruit advisory board members|
|7. Create and circulate a briefing document for members that includes:
||Members of the advisory board will be informed going into the first meeting and be empowered to make decisions|
|8. Convene the first advisory board meeting (if relevant)|
|9. Review practice of the advisory board||Ensure its ongoing effectiveness|