Don't risk it alone! Advisory Boards Work
Being the Managing Director and also the major shareholder of a private or family company can be a lonely role. Staff are sometimes reluctant to voice their opinion and even when they do, the viewpoint is often influenced by the subservient employee position. An advisory board brings independent, considered advice without the negatives, for either party, of a statutory Non Executive Director.
Whilst having an external party involved in the business as a Non Executive Director works well for public companies and for many larger private companies where there are numerous shareholders, it is not always easy for an entrepreneur to accept the rigours of a Non Executive Director on their statutory board.
You can always hire advisors, however, this can be a costly exercise and their availability and commitment are not always aligned. This is where having an advisory board provides a viable alternative as it brings independent advice from people who have spent the time to understand your business, whilst still enabling you to retain the ability to make unimpeded decisions.
When deciding upon an advisory board there are number of factors that need to be considered. Some of these are:
- Define the profile of the composition of advisory board members that you require. What expertise do you need to bring to the board room to assist you?
- Understand what you want - a mentor or just experienced advice; do you want sectorial knowledge or just experienced business people that bring diversified knowledge; do you need someone with a strong network that is able to open doors for you?
- What are your expectations of the individual advisory board member?
- What is the frequency of meetings - monthly, bi-monthly, quarterly?
- What availability do you want to have of the advisory board members in between meetings?
- Contribution or names - do you just want their names on your website and in promotional material to bring credibility to your company or do you want real contributors as well?
- Start small - a two to three man advisory board, plus the owner/managing director for a small company is probably the right mix. As the business grows you can always add specific skill sets with new advisory board members or change the existing mix.
- Flexibility - if you think you may need to change the mix as you grow, make sure your advisory board members understand your intentions. Remember, you want to retain them as allies after they leave the Advisory Board.
- Get your pitch right - when approaching parties, as with all business dealings, get your pitch right.
- Compensation - research and understand what the market rates are for members of the type of advisory board you are creating. Typically advisory board members are paid for their services. If the business is a start up then potentially shares or options could be offered as part (or all) of the compensation.
Once appointed you should build on the relationship seeking advice and their opinion. Once they fully understand your business and you have established trust you can ask for favours such as introductions - remember don't be too eager, this should evolve as relationships and knowledge are bedded in.
Find the best way to communicate, this is critical as they will have other obligations and commitments, your engagement of them does not give you 24hr access. Make sure you include them in internal communications, this will assist in keeping them appraised of what is happening in between advisory board meetings. Appraise your staff of the advisory board, its purpose and who are the members. We have found this to be viewed by staff as a progressive step in the company's development.
If you are looking at an advisory board as a means of getting cheap advice, although this may in fact be one of the outcomes, you are approaching it from the wrong perspective. Treated the right way an advisory board can be a very effective way to introduce a governance structure and a methodology of making decisions that will underpin your long term goals and strategies well into the future.
Author: Ian Knight, Partner of nem Australasia, and Managing Director of Non Executive Board.