Advisory Boards Provide Strategic Direction and Help Businesses Navigate Emerging Challenges
Mar 04, 2009
Much like a board of directors at a public company, an advisory board is a group of people who’ve been selected to advise privately held business owners on everything from strategy and operational issues to sales, marketing, and finance. While some organizations resist the notion of employing advisors from outside the company — especially family businesses, who often prefer to keep the inner workings of their businesses to themselves — many more are proponents of the idea. The problem comes in its execution; too often, businesses get bogged down in day-to-day management, and forming a board gets pushed to the back burner. This is unfortunate, as an advisory board can offer fresh perspectives and be critical to helping companies develop a sound strategy and navigate business challenges as they arise.
Why Form a Board?
Most privately held companies form a board in response to a crisis situation, whether that means a leadership transition to non-family members or a specific skill set a business is lacking that’s suddenly needed. However, advisory boards offer a number of benefits, not the least of which is independent, objective input on business issues and decisions.They offer complementary skills or experience to the management team, as well as expertise in important technical disciplines. They can offer strategic connections to other organizations. Finally, they afford management a rare pause to reflect on company accomplishments and direction as compared to the strategic vision. Has the company achieved its goals? What could be done differently?
Who Should Be on the Board?
Depending upon the size of the organization, the ideal size of an advisory board is typically 5-8 people. Good candidates include business owners from a similar business or service sector (but not direct competitors). If you intend to include professional advisors, such as lawyers, bankers, or accountants, select individuals other than those with whom you regularly consult.
Desirable characteristics include folks that have the time and intent to fully commit to the board, can communicate clearly and concisely, and are unafraid to challenge the status quo. The ability to be a good listener, possessing values that align with the organization’s, and objectivity are important as well. Other important attributes are character and judgment; board members must maintain the trust of the CEO, management team, and owners to be successful.
Although most board members don’t do it for the money, adequate compensation is in order; the rule is to pay enough so members feel accountable and know you’re serious. Compensation should acknowledge the value of their time and expertise. In addition, keep in mind that new board members will need time to get familiar with the business, how it’s run, and how the management team functions. It typically takes a couple of meetings to add real value.
Periodically, larger organizations may also want to consider forming subcommittees to focus on specific tasks like compensation, strategic planning, finance, and talent pipeline. Normally, the advisory board’s responsibility is to provide oversight; subcommittees can help implement plans and provide balance between owners and the management team.