Be it an established industry or a start-up, a great business needs different brains and the helping hands of other people. An organization’s success solely depends upon the access to pitch-perfect advice from an advisory board. Usually, business entities get necessary advice from different hierarchies such as the board of directors, familiar networks, or consultants. Without a doubt, advisory boards gain more importance in an enterprise. This article explores more about the functions of an advisory board, its structuration, and its effects upon an enterprise on its growth and the value.
What is an Advisory Board?
Advisory board is mainly formed to provide advice, assistance and support to corporate leaders and business owners. It is an informally organized group formed outside of a business or a corporate. The advisory board only takes up the activities which are not formal and does not involve in any legal responsibilities and other fiduciary duties that are carried out by the board of directors. The advisory board mostly communicates with and works for the business owner or the CEO of a company.
Why does a company need an Advisory Board?
A company should think about the real purpose behind including an advisory board. It should answer questions such as “Why does our company need an advisory board?” and “What are we expecting out of an advisory board?” It may need assistance in various fields ranging from managing the multiple sectors, marketing, or managing the human resources to even restructuring the company’s whole regulations. Careful thoughts on including an advisory board will maximize the board’s contribution to the company’s success.
Inclusion of Small Private Company Involving outsiders in an enterprise may freak out any entrepreneurs as there is a potential loss of control from the board of directors. Even the Multinational companies that get their work done by different and small companies around the world would not prefer the inclusion of the external advisory body.
In this case, the advisory body can explain that the loss of control can not happen when there are differences in location, language, culture, and business norms. Setting up a large advisory board with more number of people would be a long-term achievement. Therefore, including a small external group with potential individual advisory people. It is also all about the understanding between the board and the company’s authority who is handling them. The smaller board works efficiently on the particular issue in the given time while comparing to the larger board of directors with other raging matters to look after.
Legitimization of advice
Some entrepreneurs have more speculations on including an advisory board to provide thoughtful and relevant guidance. Some people find it difficult to focus more on seeking help from an external firm as they might have sunk in the complexity and their business’s speed. The advisory board can assure them through their consistent, high-quality, and meaningful knowledge of a particular issue. This might turn the company or the entrepreneur to consider hiring the advisory team and believe that the problem is taken under their serious consideration.
Bridge for Changes
The board of directors may settle in with tentative ideas that yield only partial success. The advisory team can act as a catalyst to create the changes to sound promising to the authorities and managing team.
The advisory team is a great bridge to the investors who have a limited partnership in a company. They may feel the need to create management changes without losing their benefits of limited liability. In most of these cases, advisory boards are used to bridge the gap between the management and the investors to cause the desired change.
Input on Particular Issue
A company may need suggestions on a particular sector, such as customer service, marketing, contact network expansion, and product progression. An advisory board is included to focus on a specific issue that needs a dire solution to exempt in the goal. The other fields may have the board of directors’ hands to deal with as the advisory board only needs to focus on the proposed issue.
Managing the Competitor/Customer Issues
The board of directors may face an issue from their potential customers or the customers already on board with the company. Usually, the problem may arise between the enterprise and the customer or rarely between the customers having a prominent position in the board and the company.
The advisory board provides both an insider’s view and outsider’s opinion on the product based on the current market trends. The board acts as the Beta testers to the product and provide honest feedbacks and validation to the product before it hits the market.
Commitment to the Time Time is the most important factor in any field to complete a task. Having a board of directors to handle the issue by conducting meetings after meetings would be time-consuming. Comparatively, a small advisory team needs only discussions twice a year to identify the specific problem and focus on it. Even though the meetings are quite less than a company’s usual meetups, the advisory board needs to showcase its commitment to the deadlines and its consistency towards the advisement.
Tackling the Liability Issues
The board of directors can experience legislative liabilities, such as environmental damage, unpaid taxes, and unpaid wages. The weaknesses can also lead to other regulatory or civil liability. In this case, an advisory board is expected to tackle the duties of such sort. It should focus more on the management of a business than focusing on such issues before receiving a permission from the board of directors to look after the mentioned liabilities.
How to Create and Operate an Advisory Board?
Before starting any business, firm planning and understanding of the business's purposes should be analyzed well. The following concerns should be taken into consideration while creating an efficient and unique advisory board.
Guide to Create an Effective Board of Advisors
Before setting up any team, a deep analysis on the purpose of the team and the goals of the team should be done. If a company is about to seek the help of an advisory team, then it needs to analysis the following points:
• Finding out the specific job to provide the board to work on
• Analyzing the main areas that need guidance and advice
• Finding out the potential candidates in the board
• Determining the limitations and authority of the board
Sought out the Advisement
An advisory board may help provide suggestions to a Chairman, or CEO, or Senior Executive, or the board of directors. The enterprise and also the advisory board need to seek out what advisement is required and where the advisement should be proposed. In some cases, the board of directors may feel a little out of the enterprise when the advisement is being presented, and the decisions are taken between the CEO and the advisory board.
An advisory board needs to equip the right person to focus on the targeted issue in a company. Therefore, planning the decisions around establishing the advisement would be good for both the enterprise and the advisory board. Focus
The primary focus of the advisory board should be determined. Some companies may need a wide range of management responsibilities like the board of directors. Some companies might need just to focus on the identified issue.
The Board Siz
The size of the advisory board is always mattered as it affects the both advisory activities and the enterprise. It is always advisable to start with a small group of people rather than bringing up with larger number of people in a team. A leader for the group is necessary to take up the plans and to communicate it better with the team and the authorities. Mostly the size of the board varies from two people to thirty people. A mid-sized company or growing start-ups can have a board of six to seven people. A board of two or three people is advisable for even the smaller companies. The dynamics of the team could be ranging from eight people to the needs of the enterprise. This also affects the recruitment of the advisory board. Thus, the size of the advisory board is important before taking up any project.
Recruitment Process Often the business owners tend to seek advice or wants any member from the family or friends to look after the advisory team. The advisory board will be perfect only if the family member or the friend is in high authority in a particular expertise. Otherwise, it will be of total failure as the family or friends only bring ideas to secure the relationships. An outside perspective is more important from an advisory team for the growth and the success of a company.
The following process helps in finding the perfect members for an advisory board:
• Profile Set up: Setting up an ideal profile for a candidate with the right skills and knowledge that the company needs
• Seek out for an Expert: Searching for an expert in a particular field may help in matching up with the ideal candidate profile for the advisory board
• Networking: participate in networking with the colleagues and familiar people who are in higher positions will help in finding or asking the same person to be on the advisory board
• Motivation of the member: Finding out the motivation of the member is more important as every member will not be working for only monetary rewards. Some may work for challenging environment and problems to get motivated to work on.
• Variety of Members: Look out for the members who have different areas of expertise in corporate to benefit your company in providing advisement in all aspects
• Clear Communication: Communicating the needs and goals of a company to the advisory members is more important that it leads to create a better strategies according to the needs
Scheduled and Organized Meetings
Each and every person in the advisory board is unique and there for a particular reason. They tend to work as a group to establish their exquisite advisement. The group's activities should be directed and organized efficiently to improvise the group functioning. A well planned meeting agenda and the meeting schedules have to be prepared beforehand to avoid the confusion. The meeting material and the meeting times can be passed on to the members through the group leader. The advisory group meetings ideally happen once or twice in a year with the enterprise.
Recruiting a member or terminating a member from an advisory board is very difficult. The recruitment may happen on the basis of familiarity of a person or the termination could be taken as a personal criticism. This situation happens when the advisory board has just started its career and have not planned the benefits and costs of the board. In this case, a short-term membership of two to three years can be created to renew the membership of the person if he/she delivers good to the group and to avoid the withdraw of a person if found with unproductiveness.
The advisory board members decide to work with an enterprise for many reasons. For instance, if an advisory board working on the scientific research and labs it may agree to work with a medical enterprise for various compensations. The enterprise may pay them with additional stocks in the enterprise; any member of the board can be retained by the enterprise as their consultants; the board can work for the enterprise for personal favor; or even the board will receive the financial reward from the enterprise. It is advisable to negotiate the compensation before signing up a project. It always depends upon the advisory board and the members in the board to discuss the payment mechanisms.
The CEO must communicate with each and every members of the board to inform about the meetings and get the approval of the meetings in advance. Communicating each and every information of the company to the advisors helps in weaving the relevant strategies and clear ambience to work on the improvisation of the company.
Periodical assessment of the advisory board is needed to calculate its improvement and the growth rate of the company. Over 80% of the companies around the world do not have an advisory board to perform its operations skilfully. The odds are in favor to create an advisory board and seeking help from it. The CEO must annually assess the board’s improvement and define its success criteria each year.
Commitment to Leadership & Management
As an advisory board, providing advisement and managerial suggestions to other enterprise should spent some time for itself to discuss the organization of meetings, board rules, members’ recruitment, and management of the above mentioned activities. The commitment of the advisory board is more important while conducting a meeting. A member could become late to the meeting, or the leader could cancel the meeting due to the unavailability, or the members not getting ready for the meeting are some of the reasons that put the board under speculation and higher risks to question their credibility and commitment.
Advantages of Having an Advisory Board:
Over the competition in the marketplace, almost every company benefits from an advisory board. An advisory board can be helpful in:
• Enhancing public relations and community connections
• Influencing on networking introduction
• Assisting in strategic planning
• Helping in eliminating mistakes that cause severe costs
• Enhancing the effectiveness in the management of CEO
• Providing outside perspective without any bias
• Providing credibility towards vendors, customers and investors
• Having increased corporate discipline and accountability
• Coming up with novel business opportunities and ideas
• Tweaking out skills required to substitute the current management system
• Helping to cope up with changing market trends
• Assisting in the transition of leadership or any crisis after the resignation or the death of the CEO
Pitfalls to Overcome: Working with any advisory board has a few issues and obstacles to overcome.
Fright of Senior Managers: Some senior members of the company or the board of directors might have the intimidation towards the advisory team as they may feel a little out from the organization. The CEO should clear the air between them by narrating the advantages and the roles and responsibilities of the advisory board.
Disruptive Personalities: Some members of the board may be determined about their own opinions and have strong denial over the right decisions of the approval of the CEO. This may disrupt the harmony and the growth of the company.
Irregular Communication: The CEO must maintain the regular communication with the advisory board to go by the relevant plans and to achieve the goal without any lack of communication.
Absence in the Meetings: A member of the board may not be available for the meetings all the time as he/she might have other business to run it successfully. The membership of the particular member should be reviewed if the absence prolonged for a long time as the meetings are important to plan the relevant strategies.
Excessive Members: As already mentioned, the size and structure of the board matters to communicate things effectively. If a board has more members than needed, then the quieter members’ contributions will be dominated by the dominating members. A company needs a same level of contribution from each member of the board for the holistic success.
Creating an advisory board can become a waste of time or become a helpful and fruitful in an enterprise's success. The rate of success would be higher when you put the strong efforts and commitment while the advisory board's creation, development and management.