While public companies are often vilified for a board of directors that seem to rubber stamp executive decisions, we have found advisory boards to be of tremendous value to the leaders of privately held companies.
In an age of rapidly changing industries and limited resources, an effective board of advisors can help make immediate and significant impacts on the strategies, sales or bottom line results of organizations.
As with any new initiative, the question for many leaders is “how do I form an advisory board?”
This article is intended to get you started on the process. In order to address the unique aspects of your organization, particularly the ownership group, we encourage you to contact us with specific questions.
Step One: Defining the Advisory Board Purpose, Structure, and Approach
It’s best to start with “the Plan!”
Develop a Guideline Document that describes the following:
· The Company: History, Vision, Strategic Plan, and Management Team
· Purpose and Responsibilities: Goals and Focus of the Advisory Board
· Member Expertise: Skill Sets and Experience Desired in Members
· Composition and Tenure: Number of Advisors and Expected Tenure
· Schedule and Time Commitment: Meetings, Mentoring, and Other Involvement
· Officers and Committees: Board Structure and Committee Requirements
· Compensation: How Members will be Paid
· Other: Managing Expectations for Members
Step Two: Identify Candidates or Sources for Potential Board Candidates
The biggest risk of most leaders is to seek out advisors they already know (and sometimes are already paying) such as their accountant, attorney, or financial planner. We recommend you seek advisory board members that directly align to the business strategy. If you want to grow internationally, seek out international sales expertise. If you want to acquire businesses, seek advisors that have acquired companies. You’ll soon find that networking for advisory board candidates will produce a number of interested and qualified individuals.
Step Three: Interview as though Hiring an Executive
The process of interviewing job candidates is easily understood and leaders recognize that it’s always best to have multiple qualified candidates for one position. The same is true of an advisory board. Ideally, a leader can identify, interview, and choose from several qualified candidates who are highly interested in contributing to the Advisory Board. If possible, include owners or existing board members in the interview process. Share the Guideline Document with each candidate so that they understand the expectations and commitment.
Step Four: Select and Provide Orientation to each New Member
Once your Advisory Board members have accepted, we recommend you meet individually with each of them to further discuss your organization, strategic plans, and expectations for the board. It may be appropriate that they meet additional owners or management or learn more about your products, services, and customer focus. You might also give additional details on your board composition and the other advisory board members. If you have invited more than one, we recommend this orientation include all of them.
Step Five: Conduct Advisory Board Meetings
The agenda for your first advisory board meeting should be similar to future meetings. Topics will include: owners’ expectations and long-term goals; year-to-date financial results; review of strategic plan and actual results versus goals; strategic topics requiring board attention; and, possible presentations by senior management relevant to the strategies. At the conclusion of each meeting, the president/chief executive officer should summarize the action items that were identified in the meeting. One week before every meeting, distribute an agenda and any reports (i.e. financial statements) to review. Follow up each meeting with summary meeting notes.
The most appealing aspect of an Advisory Board is that you can change it quickly. After one year of quarterly meetings, you will have a better understanding of what (and who) is working best. If structured appropriately, members will know that the board collectively and each of them individually will be evaluated after one year to assess required changes for the future.
Like any well-functioning management team, the discussions should be direct and challenging. Effective members will understand their role is to advise, but to also take seriously their role as representatives of ownership. The impact on your organization’s success should be timely and meaningful.