Article : Advisory Boards for Private Companies

Many small privately owned companies are benefiting from the resources that an Advisory Board can offer. The benefits can be substantial, while the costs are low, creating a great return on investment.

What is an Advisory Board? An Advisory Board is not a Board of Directors, which has a legal fiduciary responsibility to owners and shareholders. A Board of Directors also has ultimate control over the CEO of the company. They can hire and fire the CEO, determine compensation, etc. On the other hand, an Advisory Board is typically a group of professionals that is chosen for their expertise or influence in the industry. They are utilized by the company in order to offer advice and guidance to the CEO and senior management. The Advisory Board members do not have the legal responsibility or liabilities associated with a Board of Directors.

There are many benefits that a properly formulated Advisory Board can offer:

  1. Provide a sounding board for the CEO, as the strategic direction of the company is determined, and adjusted over time. The Advisory Board does not create strategy for the company, but will provide advice and guidance to the CEO as the strategic direction is formulated.
  2. An outsider's perspective is provided to company management. This can be especially important if the CEO of the company has limited experience outside their industry.
  3. Members of the Advisory Board offer specific skills and experiences that the CEO does not have within the company. This could be in the areas of finance, marketing, technology, etc. They typically have much more experience in their field of expertise than anyone within the company. The company could not afford to hire this level of expertise on a full time basis.
  4. Typical Advisory Board members have inside connections within their industry that can be of benefit to company management.
  5. Advisory Board members do not have hidden agendas. They are not protecting their position within the company. They provide objective guidance.
  6. Family owned businesses can often benefit a great deal from the independent perspective provided by an Advisory Board. If there are tensions between different family members that are preventing the company from moving ahead on new initiatives, the Advisory Board can serve an invaluable role in breaking these logjams.

The Advisory Board should be structured to meet the specific needs of the company, and the desires of senior management. To determine this, ask these questions:

  1. What areas of expertise do the CEO and senior management team lack?
  2. Are there specific industry contacts or relationships that need to be developed?
  3. How might these needs change in the future?

When evaluating specific candidates, the chemistry between Advisory Board members and Senior Management is critical. A collegial environment should be sought in order to benefit from everyone's expertise. Advisory Board members must all feel comfortable in an advisory role. They should recognize that they are not running the company, but have a strong commitment to supporting the CEO. This could be difficult for some Advisory Board candidates, who would prefer a "command and control" environment. These issues must be discussed during the interview process.

Expectations must be set, and must be clearly understood by Advisory Board members. The time commitment required from Advisory Board members can and should vary over time, but some general guidelines should be set. How often will Advisory Board meetings be held (monthly, quarterly)? An additional time commitment from Board Members between meetings should be expected. If it is expected that a Board Member will help open doors for the company, then this should be clearly discussed.

Once a strong Advisory Board is established, company management will have the benefit of a committed group of professionals who can help make a good company great. In our rapidly changing, hyper-competitive global economy, an Advisory Board will allow any company to substantially improve their performance.

© Copyright David W. Kellogg 2003. All rights reserved.


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