Advisory Boards 101

September 21, 2009 at 4:58 pm 1 comment

Hands

When considering the concept of effective governance in the business world one inevitably thinks about boards of directors. Indeed, in the United States every state does require that corporations have a board of directors. This business structure, when applied correctly, brings much value to all stakeholders and as such has been applied to non-corporate entities as well.

Advisory boards are another effective business or management tool that can provide many of the best advantages of the more structured and mandated board of directors while being easier to manage and much less complex to construct. According to Entrepreneur Magazine advisory boards are:

A group of individuals who’ve been selected to help advise a business owner regarding any number of business issues, including marketing, sales, financing, expansion and so on; a body that advises the board of directors and management of a corporation but does not have authority to vote on corporate matters.

By their very definition, advisory boards are appropriate to businesses of all sizes and certainly organizations in the start-up phase may be very well served by assembling an advisory board. Advisory boards can offer sage advice and steadfast support. At their best, advisory boards will advocate and enthusiastically support their company as well as offer guidance both formally at regularly scheduled intervals and on an as needed basis. Advisory boards can also offer instant credibility. They can help assess opportunity and supplement resources within the organization.

Another less frequently discussed function of an advisory board is that in corporations it can act as a feeder-system for the board of directors. Individuals can get involved in a company in a more limited way before becoming a director. This can provide a mutually beneficial understanding of culture and style that can ultimately lead to better integration and success on the board of directors.

It is best to start one’s thinking and planning regarding an advisory board with an awareness of what the goal(s) and purpose of this assemblage is. Planning should also include clarifying how advisory board members are to be compensated, or even if they will be compensated (monetarily) at all. In some cases, advisory board members may derive satisfaction from simply being involved with the company. They may be fulfilled through the intellectual challenge and/or the exposure to a new environment and industry. If financial remuneration is necessary it can take the form of cash compensation, expense payments or equity.

The ideal structure of an advisory board is similar to that of a board of directors, although advisory boards are often smaller in size. An advisory board can be comprised of as few as three or four individuals. Importantly, these individuals should be of varied backgrounds and experiences. They should be of sufficient stature and qualification to be able to provide advice, sound judgment and even appropriate introductions. On the other hand they should not be so renowned and in demand as to not have sufficient time to devote.

Advisory board members like corporate directors must be communicated with and provided the tools necessary to perform their job. This includes orientation materials at the outset as well as regular updates on business developments and other matters of strategic importance. There should be several scheduled meetings each year as well as the inevitable impromptu phone calls originating from either direction.

Expectations about business governance are at an all-time high and are not expected to change in the near future. Advisory boards can provide important guidance, collaboration, feedback and partnership. They can be a very valuable resource to the organization but in order to reap their many benefits, they should be thoughtfully and strategically planned for, created and ultimately managed.

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Entry filed under: Business, Corporate Governance, Recruiting.

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1 Comment

  • 1. Cary Burch  |  September 21, 2009 at 6:02 pm

    Great article Patricia! With many senior executives sidelined due to the economy, I am finding that there are more willing high powered advisors available. Picking the right “mix” of advisors is key.

    Regards,

    Cary Burch
    CEO
    LSSI
    http://www.lendersupport.com


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