ADVISORY BOARDS- DO YOU NEED ONE ?

John HollandAdvisory Boards – do you need one?

It’s a fact that owners of small and midsized businesses are self made leaders. All of our clients like being their own boss. The idea of creating an external board that will have insights into how you run the business seems invasive. However the nature of an advisory board is such that it can be a tremendous ally in the quest for superior performance.

It’s also a fact that most SME’s have not considered an advisory board, probably through lack of awareness. But those that have one are all seeing the advantages. Managing a business is a demanding and often lonely job. An Advisory Board can be invaluable help.

What are the concerns?

Most fears derive from a feeling that there will be a loss of control. This is erroneous, the AB is there as a non- equity holding, helping hand, to provide support and advice from a neutral corner. The AB is there to ask questions of course, but all geared to supporting the owner and the enterprise.
Exposure to mistakes. Some owners fear embarrassment for faulty decisions. An AB usually has the experience to know that mistakes are normal, and is there to provide a safe environment where mistakes are recognized while effective solutions can be simultaneously found.
The AB will take up too much time, and I am already too busy at work. Counter intuitively, the AB will help you move your management onto a strategic level, and thereby create more time for you. AB meetings may be held 4 times a year, for 2 to 3 hours to focus on the more important matters.
At what stage in a small business’ life cycle is it ready for a board of advisers?

The simple answer is that a start up business can really benefit from an AB in setting the table for a successful market entry, just as much as an established enterprise needs external advice. The board could consist of 2 or 3 members with salient market experience, who can accelerate progress using their network and knowledge.

Should I not have a Board of Directors?

Private companies are not obliged to have a Board of Directors, and the roles of Directors are governed by statute and fiduciary responsibilities. For small and medium-sized companies, an advisory board is often preferable to a formal board of directors who do have a financial interest which may influence advice. An Advisory Board generally has a lighter “touch”, and does not have responsibility over governance. Bigger companies may have a Board of Directors and an Advisory Board.

What can your board do?

Provide informed guidance and advice on the challenges facing a company
A board can be particularly useful in devising strategy and discovering opportunities for innovation.
An advisory board meeting is an opportunity for entrepreneurs to step back and look at the big picture with the help of a trusted group of advisors who are committed to the success of the business.
Raise the bar for implementing best management practices
Act as a gentle prod to entrepreneurs who have to report on commitments made at the last meeting.
An advisory board can lighten the burden, provide answers, and help you to make the best decisions for your company’s future.

Who could sit on my Advisory Board?

Business owners should look for people with key functional skills that will be fit your business (Business strategy, Marketing, Finance, IT, for example). Advisory board members often have relevant industry experience and what’s important is to take the time to find advisory board members of the highest quality and a commitment to your business’s success. It is advised that you appoint a chair in order to coordinate AB support, run meetings, and help stay on track.

Compensation

Our advice would be to steer away from equity grants, and stick with retainers or fees for meetings. The bigger companies with AB members that know their business are kept on retainer, and receive meeting fees, while smaller organizations have a meeting or hourly fee arrangement.

Should you wish to discuss more, or how we can help, contact us at info@plutuscg.com

J Holland

Senior Associate

September 2013

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