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About Advisory Boards

A company’s success most often depends on people—and not just those who work for it. 

Companies seeking an opportunity to build on growth and success or negotiate through tricky times may turn to a special group of individuals to benefit from their insights and talents.  Commonly known as an advisory board, this panel of outside counselors is selected by a business owner or executive to offer advice, input and act as a sounding board for a broad spectrum of issues.  Issues an advisory board may address know no boundaries.  Operation, growth, financing, conflicts of interest, investment strategy options and human resources are just a few.

Advisory boards offer numerous incentives to business owners and executives.  First, the business owner gets to pick who’s on the board.  And unlike a formal board of directors, advisory board members serve at the pleasure of the business owner and offer advice, not dictate instructions or directions.  Boards of directors have certain fiduciary obligations to the company and its owner/investors.  In contrast, members of an advisory board have no such legal obligations or responsibilities.  This allows members to focus on their service to the business executive regardless of the politics of management’s relationship with the company’s owners.

Typically, advisory board members are experienced in the company’s industry, supplementing management skills and knowledge in running the company.  Advisory board members are also well connected, providing excellent resources and business development opportunities. 

Before establishing an advisory board, business owners or executives should consider what their companies need most.  First, they should identify specific skills lacking in current management.  Then, they must find seasoned business veterans who have successfully tackled the problems that the business will face in the coming year.  Business owners should interview candidates to ensure that they are people with whom they can work.  These potential advisory board members should be people who are not afraid to share their opinions and who do not have conflicts of interest that cannot be waived.  This is an important step because the information being shared often will be confidential.

Business owners would be well served to limit the number of advisory board members to five or fewer.  This ensures efficiency and limits the cost of establishing and maintaining an advisory board.  Members should be compensated for their attendance at each meeting, and while the fee need not be excessive, it should be fair.

Finally, to prepare themselves for difficult advice they may receive from advisory board members, business owners should be prepared to deal with criticism.  This can be difficult, especially for the entrepreneur who has created a successful business from the ground up.

Advisory boards are a time-tested way to provide quality advice and guidance to owners and managers of businesses.  Such advice and guidance can be especially valuable to owners and executives of rapidly growing private companies faced with many of the same concerns as larger companies, yet still operating within a small-business budget.