If you’re looking for a fresh perspective on the issues confronting your company’s business, but you don’t wish to be bound by the recommendations of outsiders or acknowledge the need for assistance from your board of directors, then an advisory board may be a good vehicle to assist you and your management team.
Unlike a board of directors, whose members have fiduciary duties to the company and its shareholders, the members of an advisory board have no duties or decision-making authority. Their role is to provide strategic advice to the company’s officers and executives on big and small issues alike. This independent insight can be quite helpful when confronting difficult decisions around succession, growth, diversification, acquisition, sale, and other challenges confronting your company.
When seeking advisors and forming an advisory board, consider the following:
Select Advisors Carefully. Do your homework before selecting appropriate candidates. This is your chance to expand your circle of experienced people. Try to avoid appointing people you already know well or work with. You already benefit from their insight. Focus on a specific need, ask a lot of questions, and check references. Look for people with skill sets and experiences you and your management team lack. Does an advisor have contacts that may be helpful to your business? Have they previously confronted the issues you’re now confronting? How broad and potentially useful is their network of professionals? On the other hand, could they have conflicts-of-interest that may outweigh the benefits they could bring to your company? Think small. Start with an advisor or group of advisors that you need at the moment. Allow it to grow over time. Always keep in mind how well a new member will get along with existing members. The last thing you need are additional conflicts to resolve.
Set Clear Expectations. Tell each advisor why you want them to be an advisor and what you expect from them. You may want to use a written agreement to set out the roles and responsibilities of each advisor. State your expectations of time commitment, level of effort, and the sensitive nature of the information they will be receiving. It’s all confidential. Discuss and then spell out any compensation arrangement in advance. It’s quite common to compensate advisors in one form or another. But compensation varies widely, depending on the company, the relationship, the level of involvement, and the expertise brought to bear. One common arrangement is to pay each advisor a per-meeting fee and reimburse reasonable expenses. Companies in some industries compensate advisors with equity.
Educate Your Advisors. Only invite people to serve as an advisor who possess knowledge of, and interest in, your industry. Once you decide to invite them, spend time bringing them up to speed on the nature and history of your business, its advantages and challenges in its marketplaces, and your vision as to where you want to take the company. Don’t be afraid of differences of opinion, and remain open to new and unexpected ideas.
Control the Agenda and Meetings. Take the time to explain the specific issues you want each advisor to focus on. Take the time to meet with each advisor one-on-one. These may be some of the most candid and valuable meetings you have. Other times meet with advisors as a group. Advisory boards sometimes fail due to lack of cohesiveness, lack of advance planning, and failing to focus on the most important issues facing the company at a particular point in time. Set an agenda and direct the deliberations of each meeting. Most advisors are talented in their area of expertise; you wouldn’t have selected them otherwise. They think they have a lot to contribute, and they may. But don’t let anyone advisor dominate the discussion or alter the direction of a meeting. As the chief executive officer of your company, you know the problems your company confronts better than anyone. Make sure you walk into each meeting – one-on-one or otherwise – with a specific result in mind.
Give and Request Feedback. There is a lot to be gained through communication and insightful criticism. It’s a two way street. Keep tabs on the performance of your advisors to measure their on-going level of effort and interest. This is, after all, not their only commitment. Let them know what they’re doing well and where you could use more help. Solicit ideas on how you can improve the board’s effectiveness, and how you can do a better job leading the company.
When done right, an advisory board is a mutually-beneficial experience. It can be a precursor to adding non-family members to your board of directors and making other improvements to your company to ensure its future success. Like all things, however, you will only get back what you put into it. Expect to work hard, hear things that you won’t necessarily like, but gain invaluable insight into your company and the industry you seek to dominate.