Article

Advisory boards

In today’s increasingly fast-paced environment, CEOs and their management teams need up-to-the-minute insights in order to make the right decisions. Access to experienced points of view is vital, yet sometimes the best advice can come from outside the organization. As a result, many private companies are setting up advisory boards to provide insights not otherwise readily available.

It’s a trend that’s paying off. According to a 2014 Business Development Bank study, 86 Percent of small and medium-sized business leaders surveyed said that an advisory board had made a significant positive impact on their organization’s success. More than 25 percent of those businesses experienced average annual sales growth of at least 20 percent (versus just 11 percent of businesses without such boards).

Michelle Osry, a partner and National leader of the family enterprise consulting practice at Deloitte Canada, confirms this data. “Advisory boards have the potential to deliver significant value to a CEO and the business,” she says. The key, of course, is knowing how to take advantage of that potential.

Issues

Organizations considering setting up an advisory board must take into account several factors – the most fundamental being how to ensure the board provides the desired benefit. As with any major undertaking, an ad hoc approach will virtually guarantee wasted effort; starting with a plan is a must. The CEO and management team should know what role they want the board to play in their decision-making process, what expertise they’ll want represented, and what insights they seek, especially with regards to growth strategy. This will, in turn, inform recruitment and selection criteria.

Companies should also recognize that realizing value from an advisory board requires time and effort. Regular meetings, materials prepared and distributed in advance, clearly defined compensation terms and a performance assessment mechanism are all essential to a smoothly functioning advisory board. And just as important, there’s the question of whether the CEO and management team will actually follow the board’s advice. It’s not worth having an advisory board around if no one is heeding its contribution.

An advisory board’s flexibility can represent both a benefit and a potential pitfall. Since such boards can be disbanded at any time, a management team should avoid the impulse to do so when the board questions commonly held perceptions. After all, that’s what a good advisory board is for.

Opportunities

For growing organizations, an advisory board is a smart way to access advanced skill sets or experience without having to hire new employees. When new insights or particular expertise is required, one can easily add it simply by bringing in new members. And the premise works in reverse: when insight is no longer relevant, one can easily eliminate a board position.

Insights are not the only benefit. A good advisory board will both challenge the management team to look at the business in new ways, while encouraging a degree of decision-making discipline and formality that may not otherwise exist. Organizations would do well to keep these considerations in mind when building a board independent thinkers and dynamic personalities are must-haves.

The benefits go beyond advice and insight. Businesses with an advisory board can be seen as more credible and more likely to follow the practices of good governance, which represents a competitive advantage that can attract potential investors. Advisory board members may also have contacts that are beneficial to the organization. And in family-controlled organizations, the board can bring helpful independent perspectives to family business board discussions. When assembled and used effectively, advisory boards can offer a significant edge to any business.