Why Would I Want an Advisory Board?
Here’s a secret. International research shows that, if a business owner has an advisory group supporting them, they can look forward to:
- Three times the rate of business growth
- Twice the rate of productivity growth
Compared to other businesses.
Truly, it’s that powerful. Contact us for a link to that research. And you know what? Only very few business owners have yet realised the power of this simple tool. You can be a leader in your industry, just by making good use of an advisory board.
What’s an Advisory Board?
A good board of directors should spend 80% of its time as a think-tank, 20% cross-checking. Eighty percent strategy, aspiration, creative thinking, horizon-scanning; 20% overseeing risk and compliance.
Based on the 80-20 Pareto Principle, the idea of an advisory board is to take that 80% think-tank function to a group of wise heads who are (mostly) not involved in running the business. In a small company, the 20% compliance and risk work can be done by the company’s shareholder-manager(s). Sounds good; how does it work out?
We’ve known companies attract very high-calibre, experienced business brains onto an advisory board, getting the value of their knowledge and contacts — and these are people who would not normally accept the time commitment and personal liability risk of joining the actual governance board of a small company.
An advisory board is not responsible for governing the company; its job is to guide and advise.
So how do you, a small business owner-manager, make use of an advisory board? You simply start by contacting the people you would most want as business advisors, and asking them.
The arrangement may be quite informal: you buy them all lunch from time to time in return for focussed input on issues you bring to the table. Or you can have a paid advisory board, who are likely to want to know more detail, including your financials.
The fee may be quite modest: people are often happy to extend a helping hand to a sound, ambitious business that’s being well run. It’s a good feeling to be associated with success.
The Advisory Board Dilemma
But you have a dilemma.
On the one hand, you have engaged and perhaps paid high-octane business talent for your company, and you want them to help you not only with ideas, but with making sure ideas are implemented. You want them to hold you accountable on strategy, targets, the business plan, markets, and “must do’s”. That’s where a lot of the value of advisory boards comes from, and anyhow they are likely to lose interest very quickly if you just invite them to a periodic talk-fest from which nothing much results.
On the other hand, they may inadvertently become de-facto directors. What’s that? Section 9 of the Corporations Act, our main statute, defines a director as (paraphrasing):
- A person who is appointed to the position of director, regardless of what that position is called;
- A person who acts as a director, or in accord with whose instructions or wishes the directors are accustomed to act.
In other words, your advisory board might be viewed by a court as your actual board, and your advisors might find themselves with the responsibilities and liabilities of actual directors of your company. And of course, this is only likely to come to light if something bad happens.
How do you resolve this dilemma? Draw up a charter for your advisory board (you should anyway), and make it clear that the actual directors are under no obligation to follow the advisors’ advice. Have it checked by a lawyer. Then minute everything.