An Advisory Board is the perfect fit for a CEO or ownership team that wants wise judgment, counsel and advice from others on how to improve the business, without having to give up any control over decision-making. An advisory board is not just another name for a board of directors. A formal Board of Directors, elected by the shareholders and governed by the corporation’s bylaws, directs corporate officers on how to run the company. In contrast, an advisory board is an informal group of experts and advisors hand-picked by the CEO or ownership team to provide guidance and advice. An advisory board is also different from a management committee in that an advisory board includes individuals from outside the company.
Advisory boards are designed to offer non-binding recommendations without assuming any management or decision-making functions. It is relatively easy to create, expand or decrease the size of an advisory board in order to meet the company’s needs. Members of an advisory board are recruited to serve for only as long as they are needed and can be easily replaced. Think of an advisory board as a sounding board or management think-tank. Advice and ideas are discussed, suggestions are evaluated, but the CEO or ownership team has the final say over what actions are taken.
It can be very lonely running a business and having to make every decision without the benefit and input from other people who face the same challenges you do. Many small business owners can’t comfortably confide in their employees. Often, they can’t discuss problems with their families, either. At the same time it’s difficult to be objective about one’s own business. An advisory board helps put an end to that isolation and frustration. Company management is able to interact with other business owners who understand the challenges faced daily. Advisory board members provide fresh ideas and unique perspectives, along with a diverse range of skills and experience to be leveraged. Advisors from different disciplines complement the strengths and expertise of the company’s management team, and provide broader management knowledge.
Why CEOs have advisory boards
In a recent survey, leading growth firm CEOs with advisory boards were asked to list the most important advisory board contributions they received. These included:
- Strategy setting
- Sounding board
- CEO mentoring
- New ideas
- Management mentoring
- Training for formal board of directors
- Management issues
- Investment contacts
- Executive recruitment
- Direct investment
- Business and competitive intelligence
When is an Advisory Board NOT the right solution
Companies in the mature phase of their business life cycle and whose CEO or ownership team is no longer interested in growth probably don’t need an advisory board. CEOs who want to surround themselves with people who will say “yes” all the time and who are not interested in other people’s opinions should consider other alternatives.
Advisory boards vary in size from as few as two or three members to up to seven for small to medium-sized closely-held companies. Advisory boards may meet face-to-face on a set schedule, or as needed, depending on the needs of the business. Between or as an alternative to face-to-face meetings, board members may hold discussions via teleconference, email, or on-line forums.
Advisory board members can be compensated in various ways. They may appreciate the intrinsic value of board membership, such as the personal satisfaction of helping others to succeed. Some board members may feel adequately compensated by camaraderie over nice meal, while others require a per-meeting fee or monthly retainer. Not all board members need to be compensated in the same manner.
Virtually every business can benefit from the wisdom and perspective of an experienced group of outside advisors. An advisory board permits the CEO to have mentors and a sounding board and permits the CEO to share the problems and successes of business ownership and operation with individuals committed to the future success of the business—making the top much less lonely.
While the advisory board concept has been around for many years, a surprisingly small number of business owners have taken advantage of them. This may be due to the workload of forming the board and facilitating the meetings. But an Advisory Board is such a powerful management tool that no small business should be without one.
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