Insights
Is your business missing out on the benefits of an advisory board?
Too few New Zealand businesses are making good use of advisory boards. Used effectively and with the right people involved, an advisory board can solve problems, fill knowledge gaps and help to maximise growth and profits.
In a complex and volatile business environment, advisory boards can help steer your business through choppy waters. Executive teams are increasingly faced with problems that fall outside their day-to-day areas of expertise, and advisory boards provide independent advice about how to navigate tricky times.
What makes an advisory board unique?
Many large businesses have a full constitutional board, which has decision-making power for the company. The members of a traditional constitutional board have fiduciary responsibilities, and their role tends to focus on compliance, risk management, and monitoring business performance. If they work on problem solving or growth strategies, it’s typically from a top-level strategic perspective. Risk minimisation is a priority.
In contrast, an advisory board has no decision-making power and the members don’t have the same duties as the full board members. Its focus tends to be on maximising profits and growth, solving problems, and acting as a sounding board – sometimes down to quite detailed levels of execution. Advisory board members often identify market opportunities and provide network links that can support the company’s expansion. The priority is capitalising on opportunities and how to iron out problems.
An advisory board provides suggestions, observations and ideas to those making the day-to-day decisions about the company. Those decision-makers can then decide whether or not to act on that advice.
The advisory board is both an alternative to the traditional constitutional board and a complement, so you can have one without the other or both.
We know advisory boards can be effective
Research about advisory boards demonstrates their effectiveness:
A survey of businesses leaders found 95.7% believed their advisory board added “real value” to their business, according to The Alternative Board.
Advisory boards help businesses avoid costly mistakes; broaden knowledge and skills; and provide a sounding board; among other benefits, according to research by the Business Development Bank of Canada.
A Columbia University study revealed advisory boards help organisations “remain innovative and at the forefront of their industry”, and found although board members’ experiences of past failures didn’t prevent all failures, it did minimise the probability of failure.
Another US study found an inter-professional advisory board can broaden perspectives within an organisation and lead to new insights.
Does your company need an advisory board?
An advisory board certainly isn’t a requirement for every business. First, the company needs to have reached a certain size. Beyond that, your business could benefit from an advisory board if:
your it is growing or looking to grow
you want to raise funds
you’re aiming to build strategic partnerships
the business is facing a major change of direction, with new products or expansion into new markets
the owners of the business are in the process of succession planning
the business is, or soon will be, for sale.
An advisory board will raise the level of strategic conversation, and it can be the difference between business as usual and an extremely valuable, highly saleable organisation.
Building an advisory board
You don’t need to launch an advisory board in a single push. It can begin with a single advisor – perhaps your lawyer or accountant. Alternatively it might be someone who knows the market you’re considering moving into for instance, or a person who understands the specific staffing challenges you’re facing.
From there, you can build an alternative advisory board. It might include a key person from within the business, possibly the managing director, chief executive or owner. Ideally you want an independent chair with two or three external advisors.
Members of your advisory board should be carefully selected to ensure they have the right skills. Identify areas where your company lacks knowledge – for example, it might be insights into a particular country, marketing campaigns, or recruitment.
As the company grows, the informal advisory board can move to a more formal set-up. This means having a board charter, rules for the board members and a code of conduct. It’s vital members clearly understand their own role, and everyone else’s roles on the board and within the business.
Ultimately, depending on the size and complexity of the business, you may need to establish a constitutional board in time, to ensure the company meets its regulatory and compliance requirements. Even then, having an advisory board means you can continue to have those valuable conversations about how to grow the business and solve thorny issues.
Advisory boards are an investment in your company
Maintaining an advisory board isn’t free, but it’s a genuine investment in the business. With independent advice, the leadership team can gain a different perspective on an issue.
For example, one of our clients owned a company that had been highly successful and grown rapidly, before hitting head winds. It was clear some difficult decisions had to be made but downsizing can feel like you are failing. The process was nerve-wracking for the owners. It was with the support of the advisory board the client was able to make a long-term plan, put the downsizing into perspective, and make the tough choices. Now the business is well set up to survive the tough times and will be ready to grow again when the market picks up.
Usually, though, it’s not during a quantum shift that an advisory board proves its worth. It’s an accumulation of small changes. One client is currently leveraging their advisory board to help develop their management team’s effectiveness; to clarify their purpose and vision; and to identify strengths within the business.
An advisory board is the ideal forum to explore opportunities, problem solve, and seek counsel. It’s a way for a business to invest in its future and improve accountability of the management team.. It can bring in knowledge, experience and capability where and when it’s needed.
In a time of high volatility, an advisory board has never been more valuable. This is an ideal time to establish an effective advisory board to help you navigate your business through these uncertain times and into a successful future.
