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How an advisory board can add value to your business

May 7th, 2011

I’m sometimes asked what is the value of having an advisory board for a business. Below are some key points on how an advisory board can add value to your company.

An advisory board:

  • Is separate from a board of directors
  • Still allows directors full control of the business
  • Forces a strategic perspective to the business
  • Confronts issues
  • Leverages skills
  • Who should be on it
  • How often should it meet
  • When is the right time to have an advisory board

Separate from a board of directors

First and foremost an advisory board is there to do just that – advise. It doesn’t carry the statutory obligations that a board does under the Companies Act and needs to be mindful that it doesn’t carry out its role in a way that its independent members can be deemed directors. The focus also needs to be on the strategy, not the doing.

Allows directors full control

The role of an advisory board is to question, test and challenge the business. It should not be making decisions on behalf of or for the business and at the end of the day the company’s directors still have full and complete control and they can decide to take the advice of the board or not

Forces a strategic perspective to the business

All too often the business owners can get too caught up in the ‘doing’ part of their business and fail to think at a more strategic level. The role of the advisory board is to bring a strategic perspective and bring a boarder view around the business operation. This might include assessing and managing risk, or considering the direction the company needs to take.

Confronts Issues

We tend to like to do the ‘nice’ and ‘easy’ things, but sometimes aren’t too comfortable when it comes to confronting issues. With an advisory board meeting on a regular basis those hard decisions aren’t able to be disregarded because one of the purposes of the board is to hold everyone accountable. By confronting issues the company is able to move on.

Leverages Skills

Different people bring different skills to a business and the collective power of an advisory board and their skills allows for better leverage and results rather than a business owner ‘going it alone’

Who should be on an advisory board?

That depends on the makeup of the company, but the use of an advisory board allows for differing skills at different times. Typically in the SME environment where advisory boards are becoming more accepted the board is the working directors of the company, key management (who may or may not also be one of the directors) an independent person and the company’s accountant. There is also the flexibility to bring different people on when different skills are required.

How often should an advisory board meet?

There is no right or wrong answer, but they typically meet monthly or quarterly. Depending on the scope of the board the meeting may be somewhere from 2-4 hours in duration.

What makes for an effective advisory board?

To get the most out of your advisory board there needs to be clear rules and expectations, accurate financial reporting and a willingness by all parties to work for the betterment of the company.

When is the right time to have an advisory board?

Again there is no right or wrong answer. For some companies they use them in the early stages of starting to make sure that they set a strong base for their business. Others will consider them at times of growth and again others from a succession perspective. An advisory board is a very cost effective way to make sure that you are maximising your company’s operations and opportunities.

If you are interested in finding out more if an advisory board is suitable for your business contact John Hutchinson on 06 974 6236, or [email protected]. or by clicking here

The Institute of Directors has some more information on advisory boards and this can be found by clicking on this link.

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