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Many Kiwi businesses eventually outgrow their systems and processes. Their financial, governance and management systems were a perfect fit when the business was smaller – but now, they’re hindering growth, not helping it.

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.

As a long-time board member, I’ve learned a lot about the difference a well-functioning board can make to the success of an organisation. I’m currently a Chair/Trustee for a national not-for-profit (NFP) that helps young people to thrive, develop confidence and positively contribute to our communities. It’s wonderful to see what can be achieved for our young people through an organisation with an effective board and team. Based on my own experiences, these are my tips for NFP board members. Align your board appointments with causes you are passionate about For most NFPs, board members are unpaid, so being personally aligned with the purpose of the entity is essential to keep you motivated and engaged. Volunteers who lack engagement won’t add value to the charity’s mission, purpose and overall impact. If you don’t feel strongly about the cause, leave the board position for someone who has the passion needed to be productive and enjoy their role. Foster a positive environment where everyone can express their opinions If nobody is willing to speak up with different opinions and ideas, you will make very little progress. Equally unhelpful, but more stressful, is a meeting filled with conflict, where everybody disagrees and no consensus can be reached. You need to find a balance. All boards will have times where there isn’t consensus. The key to achieving a resolution starts with everyone feeling comfortable about expressing their opinions regardless of whether they’re popular. This involves creating a safe environment where everyone has the freedom to be authentic and bring their true opinion to the table. I have personally experienced times where there have been disagreements among board members. When this happens, everyone needs time to express their views, and to respect everyone’s differences in opinion. This way, a consensus is reached faster, and when everyone supports the final decision it’s an extremely positive experience. If you bring a problem, also bring a solution It’s not uncommon to sit on a board or committee with someone who likes to turn up and throw a problem or two on the table. This negativity will make everyone else feel like there’s an extra weight on their shoulders as they try to solve the problem. A far more powerful and productive approach is to by all means raise your issue, but also put some thoughts together about potential solutions to show that you are willing to work collaboratively as a team to find a resolution. Encourage diversity of thought Diversity isn’t just about ticking boxes. It’s not about ‘Do we have a woman on the board?’. It’s about ‘Is the person opposite me going to challenge me? Are they going to bring different perspectives and see the issues through a different lens?’. Look for people who fill gaps in thinking or perspective to help represent various points of view, so you can cover as many angles as possible and ultimately get the most out of every discussion. Roll up your sleeves and get involved Boards for large businesses might be purely strategic. But NFP boards need more than just top-level engagement. As a charity trustee board member, expect to roll up your sleeves and delve into operations from time to time. If your approach is, ‘That’s not really the role of the board, I don’t want to help with that,’ you’re not likely to win any friends as the rest of the board members knuckle down and start working on day-to-day problems. It can also give you some useful insights into the culture and operations of the organisation. Be prepared for each meeting When board members arrive at a meeting without doing their homework, it means they’re not able to contribute fully to the conversation. Ensure you are prepared for every meeting, whether that’s having ticked off your to-do list, read the paperwork, or researched the topics that are up for discussion. And it’s not enough to be physically present, you also need to be mentally present and engaged. If you’re daydreaming or playing wordle during meetings, you’re not bringing much value to the organisation. You also need to be prepared to dig deeper and go beyond what is presented to you. For example are you following the board’s rules and workplan? Or, is there anything missing from the agenda that you need to raise? Follow through on your commitments Board members who turn up at each meeting having ‘forgotten’ to do what they promised impact the whole group. Be accountable and reliable: if you say you’re going to do something, get it done. It’s hard to push volunteers to complete work; the charity has no leverage to make you achieve everything on your task list. It falls on you to walk the talk, do what you have promised, and cast a positive leadership shadow. Be selective when recruiting new members Recruiting for an unpaid position can mean small charities take whoever they can get. However, ideally you don’t want to simply sign up the first person who expresses an interest. A bad apple will rapidly make the whole board dysfunctional. Try using a formal skills matrix to identify areas where the board needs extra expertise, then recruit for those specific skillsets. This has the added benefit of everyone knowing their position on the field, so to speak. For example, on my current Board financial issues come to me; legal issues to the lawyer; HR issues to the HR expert. It creates clear roles and happier board members. You can also trial prospective members. Try to find out if they will be a good fit, by inviting them to a meeting to see whether they’re prepared, engaged and passionate. Use trustee rotation for fresh perspectives There should be an exit strategy for board members as it will need fresh blood, the members may want to move on, and it provides an opportunity to disestablish members who aren’t bringing value to the organisation. New members prevent the board from becoming stale, bring in new ideas, and provide extra knowledge and skills. Getting it right leads to better outcomes for everyone As a trustee I have found my board role extremely rewarding. You can make a big impact on the community by donating your time and professional expertise. If you can get it right, being on a well-functioning board will be an enjoyable experience for you and your co-trustees, boosting your personal development and driving better performance and outcomes for a cause you are passionate about.

Becoming a trustee for a local charity is a wonderful step to take. You’re doing something meaningful for an excellent cause and you’re helping make the world a better place. However, if you are considering becoming a trustee of a charity, go in with your eyes wide open. It’s vital to understand these roles come with certain responsibilities and duties. Although trustees generally have the very best intentions, some inadvertently don’t follow the rules. These issues are particularly common with new trustees, or people who don’t have any experience with governance or running an organisation. People are enthusiastic about becoming a trustee, but don’t fully grasp the obligations that come with their new role. Five mission-critical areas of focus for trustees Do you know how to play by the rules? Every charitable trust has a board of trustees, comprised of at least two trustees. The board will likely operate under a Trust Deed. The Trust Deed typically sets out the following rules and guidelines including, but not limited to: the organisation’s charitable purpose the structure of the board how to appoint and remove trustees trustee duties and obligations how the board will operate how trust assets will be managed. As a trustee, it’s your responsibility to make yourself familiar with the Trust Deed and ensure the rules are being adhered to. Don’t assume that what the trustees have done in the past is compliant, or that trustees who have been on the board longer than you have this under control. The charity rules are readily available to trustees and to the public on the Charities Services website. Do you understand the sector’s legal and regulatory environment? When you become a trustee, you may be signing up to legal obligations such as becoming an employer, being party to contracts for services, as well as needing to lease property, plant and equipment. You need to be aware of what you are signing, and how these obligations impact you as a trustee, or even how you can become personally liable under these contracts. For example, if you sign a long-term lease and the trust cashflow is insufficient, are you liable for this cost as a trustee? There will be certain laws and regulations that apply to your charity, and you must be across all of these to avoid the financial and reputational risks of non-compliance. For example, our latest research report about the sector revealed that while 90% of charities surveyed are aware of the Privacy Act 2020, over a third hadn’t aligned their policies with the new legislation, and only 22% had reviewed third-party contractual agreements with providers who store or process personal information they receive from these organisations. A further 40% didn’t have a suitable privacy officer in place – a key requirement for any organisation that holds personal information and data about people. It is important that you understand and comply with your obligations under the Charities Act 2005, Trusts Act 2019 and the Charitable Trusts Act 1957 where relevant. I don’t need to worry about tax – do I? This is a big yes for all trustees. Many tend to know charities are exempt from tax provided the charity has met the requirements of the tax exemption process, but they don’t always understand this is only limited to income tax – it’s not a blanket exemption. Trustees must continue to consider and comply with other indirect taxes such as Goods and Services Tax (GST), and Employee Deductions (PAYE). Why does my charity need to confirm how it spends money? If your trust applies for grants, these often come with obligations to undertake accountability reporting. When you apply for these grants, they are normally tagged to cover a very specific type of expenditure, and declarations are often required at the end of the funding period to confirm the money was spent in accordance with the conditions of the grant. There’s also a flipside to each coin a charity has to spend – and this involves demonstrating funds are invested in advancing the cause of the organisation. Our research contained a word of caution for charities carrying large reserves, as this requires the need to articulate to all stakeholders and funders why the reserve are being held and what they’re going to be used for. In fact, last year’s Charities Act review recommended organisations with annual operating expenses over $140,000 will be required to disclose information about the reserves they hold, and why they hold them. This information will also be available to the media and general public. Are you confident around finances and understand your reporting requirements? From time to time we see challenges arising from trustees who lack confidence when it comes to finances including year-end reporting. This could include not having an audit when required by legislation or your own deed. The trustees must understand their charity’s financial metrics, how they align with their charity’s strategy and goals, and how they link this information through into the statement of service performance. Charities are obliged to file an annual return with Charities Services. This is due six months after balance date. These disclosures will include: Ensuring the charity’s contact details, purpose, structure, and officers’ details are up to date, and providing details of paid and unpaid work undertaken for the charity. The trustees must present the charity’s financial statements which must be compliant with the relevant reporting requirements. There are different tiers of reporting which are fit for purpose depending on the size of the charity. You must confirm you have prepared the financial statements according to the required reporting tier. Some charities will require these financial statements to be audited. This may be governed by the Trust Deed rules, it may be a requirement of the funders of the charity, or it may be a legislative requirement due to the size of the charity. The financial statements will likely need to include a Statement of Service Performance, a report which uses both written and numerical information to demonstrate what were the outcomes of the trust’s activities for the year. What are the potential outcomes of getting it wrong? Your organisation could be the subject of a Charities Services review. Much like a tax audit, this would be a fairly labour-intensive and costly process. You certainly want to avoid this if you can. You could also potentially lose your charitable status. This would be catastrophic, as your entity is then liable for income tax and donations would no longer be tax deductible to your donors. Even minor mismanagement by trustees can lead to reputational damage. People like to donate to well-managed charities, because it gives them confidence their funds are being put to good use. If the community loses faith in your organisation, it could lead to a major reduction in funding, donations and volunteers, and other organisations may no longer wish to be affiliated with yours. Financial reporting compliance is not only a problem for charities, but will increasingly be a concern for incorporated societies under the new requirements. You should by no means be discouraged from becoming a trustee of a charity. You just need to ensure you know what the obligations of your new role are, so your efforts strengthen the organisation rather than steering it into choppy waters.

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