Nobody can build a great business alone, and whether it’s a start up or an established industry leader, having access to high-quality advice can enhance an organization’s odds of success. Entities seeking advice can obtain it from a board of directors, consultants or networks of one sort or another. Increasingly, attention is being given to advisory boards. This article discusses the role of these boards, how they should be structured and organized, and their value to an enterprise.
Why have an advisory board?
Enterprises considering setting up an advisory board must answer a key question: “Why are we establishing an advisory board and what do we want out of it?” The enterprise may be seeking assistance with anything from marketing to managing human resources to influencing the direction of regulators. Thinking carefully about an advisory board’s purpose will ensure that it will be structured to maximize its contribution to an organization’s success.
Private company
For many entrepreneurs, the decision to involve outsiders in their business may be a wrenching step. Some simply do not want to dilute their control by establishing a board of directors with formal responsibilities and authority. However, the introduction of an advisory board can help some come to terms with this decision, by enabling an entrepreneur to feel comfortable with the business of providing information to, and accepting advice from, an external group.
There is a particular variation of this issue. Multinational companies may benefit (in organizational, tax or other ways) from having a local company carry on their business in a particular foreign jurisdiction. However, that same multi-national may be reluctant to cede meaningful authority to an outside group of directors of the local company. In such a case, an advisory board can address the realities of operating in a different location, with different cultural and business norms and perhaps in a different language, without any loss of control.
An advisory board can serve as a feeder group for a board of directors. The latter functions well when (among other things) it is comprised of individuals whose chemistry is good and who have the skills appropriate to the needs of the business. But the development of an effective board of directors is a long-term project. In the interim, it may be helpful to observe the nature of contributions that individuals can make, and the extent of their commitment, on an advisory board, before appointing them to a board of directors.
The smaller advisory board can, in certain cases, work more effectively than the larger board of directors. While views differ on the optimal size of a corporate board, and while different sizes are appropriate to different companies at varying stages of their lifecycles, all companies face limitations on board size. There may well be input that is required, or that is required for a defined period, that can be sought from particular individuals on an advisory board rather than allowing the board of directors to grow to an unmanageable size.
Formalizing advice
People driving enterprises often find that their jobs are lonely. For some, the issue may be that they have yet to build trust in any person or group to provide ongoing, meaningful guidance. For others, the complexity and speed of their business makes it difficult to reach out for help on any particular topic. In these and similar cases, advisory boards provide the degree of consistency, longevity and background knowledge that can allow advisory board members to know enough and have enough interest that they can advise reliably on particular issues. Having an advisory board position and receiving compensation for the position (or being committed in some other way) help to ensure that a request for assistance will be taken seriously and that thoughtful advice will be provided.
Safe harbours
Advisory boards provide safe harbours for executives who may be able to test -drive options before they are forced to be more definitive and assertive before a board of directors, which assesses the CEO and establishes his or her compensation. A CEO may feel more comfortable expressing partially defined or tentative views before a group whose sole purpose is to provide advice. For the same reason, an advisory board may also serve as an instrument of change, both as a sounding board for senior executives, and as a body that can inspire change in cases in which comparable suggestions from the board of directors might suggest a lack of confidence in the senior management team.
Advisory boards may also be needed, as a practical matter, in certain deal structures. For instance, investors in limited partnership vehicles may require a voice in business operations, but may not wish to lose the benefits of limited liability by “participating in the management” of the business directly. Advisory boards are used frequently in cases of this sort, to bridge the gap.
For more information on advisory boards please give us a call
Source:- http://iveybusinessjournal.com/
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