Advisory Boards: The Myths, Must-Haves, and Must-Nots When Putting Together A Corporate Advisory Board

Advisory boards can make or break a company. As a President and CEO, I run our board meetings, select the members… and listen to their advice. Putting together a strong advisory board can make it a true component of your management strategy.?

The Myths About Advisory Boards

The first myth about advisory boards is that they are only for large, publicly held companies. Small to mid-sized firms often have boards; if they don’t, they should. A carefully selected board can benefit a firm greatly through broader perspectives, extended networks, professional expertise in fields like legal and accounting, and years of experience that a chief executive alone could never have.?

The second myth is that a board is expensive. It doesn't have to be, but I do recommend paying board members, because it indicates that you expect a certain level of dedication and performance. That said, your board does not have to break the bank. Most advisory and/or fiduciary boards meet quarterly, but even semi-annually may be enough. To determine how much compensation is appropriate, try to ballpark the normal rate your members might charge for their services, estimate how much time they will spend annually, then use this as a jumping-off point to calculate an appropriate annual compensation rate. That said, most people are proud to be sought-after for their expertise and are often honored to be asked to serve, so a second option is to determine how much you can pay, then ask the candidate if they are willing and able to take on the challenge for that amount.

The third myth is that board members provide free professional services.

You should never expect free services from your board members; however, having certain experts on your board, such as lawyers or accountants, can be beneficial in reducing your outlay, because hey can provide you with valuable insights on industry best practices and norms, and help you determine when it is necessary to seek professional services, and when it is not.

Five Tips To Form A Successful Board

Now that you know you can have a board, here are some tips that apply whether you are forming your own or are being asked to serve.?

1. Resist putting friends or family members on your board. I have served on boards that are stocked with friends and family, and it is almost always problematic. While they are usually well-intentioned, friends and family are often more concerned with you and your feelings than with your business, and therefore, are much less likely to challenge your ideas. A chorus of “yes-men” won’t move your business forward! Qualified people are out there. Find them, pay them appropriately, then listen carefully to what they have to say.
2. Select board members with the right intentions: It goes without saying that you will select people with experience in your industry, but you have to make sure they really want to help you and aren’t just padding their resume. One way to weed out the glory-seekers is to put the requirements and expectations in writing, and let them know that if these aren’t met, they will be asked to leave the board.
3. Size matters: If you are forming a new board, “rightsizing” is critical because you want sufficient diversity of thought and experience, but you don’t want so many voices that none are heard. Identify silos where expertise is needed: HR, finance, legal, and business development are a few that you might consider. If an area of expertise is critical, you might utilize two seats for that sector and inject diversity of perspective by finding an industry veteran as well as a younger professional. Including people with different ethnic and educational backgrounds will give you more robust and nuanced input. As your company grows, you can add additional seats, but it is harder to scale down a board once you’ve established its size.
4. …and so does scale: Board members with experience in large or public companies will often struggle to understand the needs and constraints of smaller firms. Since many people struggle with thinking bigger (or smaller), pick board members familiar with your scale, as well as with the size you hope to achieve in the near/mid future.?
5. Paper Makes Perfect: Whether your board is mainly advisory or includes fiduciary elements, nobody should enter the conference room until proper NDAs are completed. If you aren’t fully transparent with your board members, they won’t be able to help you; NDAs allow everyone to speak freely. It is also essential to cover all fiduciary board members with Directors & Officers (D&O) insurance. Finally, put a detailed description of your expectations in each board member's onboarding package, and have them sign it to confirm that they understand and agree.

A thoughtfully assembled, well-run corporate board will help a CEO make more well-informed decisions. Serving on such a board can expand your network, enhance your knowledge of other industries, and help you make wise decisions when you are put in charge of your firm’s board!