By Brandon Fredericks, CPA | AGP Advisory, Leader
How different the world looks and feels in March 2021? Crazy to think a little over thirteen months ago, I finished up my last business travel via air travel for an Advisory project. Since then, I have yet to step foot on a tarmac. Though ‘how’ we do business has changed drastically, our clients and customers are still expecting us to deliver every day. In some regards, they are expecting more.
As business owners and business leaders, we have been thrown into a crisis with challenges and issues we never thought we would have to deal with as leaders. However, as we look around, some organizations have thrived through this time period. Their team members are safe, client/customer satisfaction is high and they are continuing to move forward with their strategic plan—all amid a pandemic. How are some organizations thriving and others just surviving? A multifaceted answer, and one component is the concept of an effective advisory board standing strong and alongside organizations.
What do we mean when we say an ‘advisory board’?
An advisory board is an outside team that is assembled by the CEO or business leaders of an organization with the overall mission to provide counsel, advice, and support. Advisors from different disciplines can complement the strengths and expertise of the organization’s in-house leaders and provide broader management knowledge.
We should clarify upfront, advisory boards differ significantly from a traditional board of directors. While formal boards of directors have legally defined responsibilities and fiduciary duties, advisory boards have no formal power or binding legal authority. They serve at the pleasure of the business owner or CEO.
The beauty of an advisory board has many perks and let’s clarify its advantages over a standard board of directors:
- Nimble and agile in nature
- The sole purpose of this board is to support businesses and business leaders. Thus, the board members assembled are hand-picked to help support you and the organization. As your organization changes and evolves, so should your board. The ability to create and adjust provides a great resource to support the organization over the years.
- Beholden to the leadership of your company
- Unlike the board of directors’ role that has fiduciary duties, a board of advisors has no such duty to the organization. What does this ultimately mean? It can provide an access line to directing, mentoring and advising the leadership team in ways that can elevate everyone’s contributions to the organization.
- Less risk, less cost
- Finally, were you aware that most organizations that have a formal board of directors obtain Directors & Officers Liability (D&O) Insurance to indemnify directors against claims from shareholders, employees and clients? Who needs that headache? Further, a study done by Equilar indicated the average base pay for a board of directors of Fortune 500 organizations was approximately $245,000. These two facts alone should make anyone think twice about heading down this path.
Why should I consider assembling an advisory board?
Whether you are a start-up in need of guidance and direction or a fifth-generation business, the benefits of a well-thought-out advisory board has the opportunity to further strengthen your overall organization. Let’s look at some of the benefits advisory boards can bring to the table…
- An unbiased voice – For the reasons mentioned above, assembled correctly, this outside perspective is not shackled by the duties of shareholders or other investors. The Board Member has a platform to offer advice to help you directly.
- An extension of the leadership team – Advisory boards can overall enhance the effectiveness of the management team. As Peter F. Drucker stated in his classic ‘The Effective Executive’, “If there is any one ‘secret’ of effectiveness, it is concentration. Effective executives do first things first and they do one thing at a time.” Further, an advisory board can be critical in times of crises. If we look around at the organizations that have truly led through COVID-19, one can suspect those leadership teams were surrounded by good outside council.
- Increased diversity – Diversity is a good thing. Diversity should be embraced. Diversity is also defined in many ways. Through the assembly of an advisory board, you have an opportunity to round out skill sets and expertise that might be currently lacking within your organization. You have an opportunity to hand select a specific member due to the creative or unique way they approach an opportunity. You have an opportunity to strengthen your organization by assembling people from all ‘walks of life’.
- Other benefits that should not be overlooked…
- Greater credibility with investors, vendors and customers
- Help in avoiding costly mistakes
- A sounding board for evaluating new business ideas and opportunities
- Enhanced community and public relations
- Improved marketing results and effectiveness
- Strategic planning assistance and input
- Centers of influence for networking introductions
While the cost and time associated with an advisory board are seen as a roadblock to many, it is important to remember that when properly assembled, the value delivered by an advisory board should far outweigh any costs. As Pierre Cléroux, VP of Research and Chief Economist at BDC, noted, “Business owners are working in the business and advisory boards forces owners to work on the business—the big picture vision—which can lead to new revenue opportunities.”