When interviewing prospective employees, I like to say half-jokingly that we specialize in going into clients whose businesses are financially on fire. Once we’ve put the fire out, they like us and keep us around. While that’s a slight exaggeration, we are often called in when a business has hit a rough patch in their financial outlook.
Yet it makes more sense for businesses to engage in practices that avoid fires in the first place. One of the more common ways that big businesses do so is to engage the help of an advisory board. Such boards could be beneficial for businesses of all sizes.
What is an advisory board?
An advisory board is a group of business leaders not employed by your organization who are authorized by you to provide advice and support but do not have any legal authority over your company. They are generally experts in their own fields. Their sole job is to provide feedback on your major business decisions or any potential trouble spots.
Please note, this is different from a Board of Directors. A Board of Directors is a permanent group, usually comprised of internal employees who are elected by shareholders and executives in a popular vote. An advisory board is chosen by a company’s management and CEO, in many cases for a limited time period to address a single issue.
Pros and Cons
Is an advisory board the correct choice for your company? Let’s take a quick look at both sides of the question.
Advisory boards can provide a fresh perspective towards issues in which your team might lack expertise, and they do so from an objective viewpoint. Chosen carefully, they can give clear input on strategic plans, operational plans, crisis prevention, and key transitions. Such feedback could prevent costly mistakes and provide great support for your managerial staff. Further, they tend to come with their own networks, providing credibility to your company and stability in times of change.
That all sounds wonderful… and yet there are a couple of drawbacks. Curating and maintaining the right advisory board takes time, effort, and money. You’ll also need to make sure that everyone on the team has collaboration and the company’s best interests at heart. Finally, you’ll need to share some privileged information—including uncomfortable topics like the company’s exact financial situation.
How to Build an Advisory Board
Let’s assume you’ve weighed the pros and cons, and you’ve decided to proceed with forming an advisory board. A google search will tell you it’s a grand total of five easy steps. This is one of those cases, however, where taking a little more time and making a few extra moves will pay off in the end. ‘Easy’ isn’t always ‘better.’
- Identify your mission.
Creating your company’s mission statement will help you clearly identify your goals and see if your vision has changed over time. An example of this is Apple: their original vision involved home PCs, and has evolved into phones, tablets, and even AppleTV. Take a look to see what it is you’re moving towards. - Assess your skills and look for what’s missing.
Your mission statement will provide a clear view of where your company needs support. If your goal is to expand to multiple states, but nobody on your team has legal expertise or real estate knowledge, you’ll want to use your advisory board to fill in those gaps. - Define your goals and your structure for the advisory board.
This isn’t the same as looking at your company’s growth goals. What is the purpose of the board? And what is the role for each member? Clearly delineating the boundaries and duties for each board member will help you to pick the right people and accomplish what you need. - Use your networks, both professional and personal.
Get recommendations on whom to add from those who know both you and your company. You might find the right advisors among your existing acquaintances, but you might have to go beyond. And nothing speaks more than a good referral. - Recruit the members.
This is the key step. You need to consider a few serious factors, including: What is their experience? Are they well-respected? Are they honest? Do they listen and communicate effectively? Will they be committed to your mission and your vision?
And some words to the wise: First, interview the candidates to make sure you’ll get along well enough. Second, no matter how tempting it is, avoid conflicts of interest. Do not hire family, friends, your vendors, or your competitors. This almost never ends well. - Keep it small.
Start with three or four members. Fewer people generally cooperate more effectively than larger groups. Should you find you need an additional expert, make sure that the person you bring in can coordinate nicely with your existing board. - Communicate clearly and be respectful of members’ time.
It’s recommended that advisory board meetings occur at most quarterly, and last at most an hour and a half. A week in advance of each meeting, send out an email communicating your objectives for that meeting and getting any necessary documentation to the members. Should there be a delay in getting that information out, explain why and if needed offer to postpone the meeting. - Compensate your advisory board members.
The usual compensation for serving on an advisory board is between $500 and $3000 USD per member per meeting. They are investing their time, wisdom, and expertise in helping you to succeed and earn their remuneration. Just a reminder, if they are earning more than $600 annually in untaxed income and you are located in the United States, make sure you have the information to issue them a 1099-MISC at the end of the year.
Conclusion
Advisory boards are excellent assets which can provide wisdom and insight. Their unique perspectives on specific issues can prevent costly business mistakes. But only you can decide if this solution is correct for your business.
