Action steps for succeeding with a board of advisors
A small to medium-size business that has an advisory board is rare in todayâs world. However, assembling a board of advisors may be one of the most important steps a CEO can take to assure the success of the company, giving the business a significant advantage over competitors that rely solely on internal talent.
To be the most effective, a good board of advisors should be composed of objective, third-party experienced business owners. Generally, the board should not include friends, family, or anyone with an emotional interest in the business. Often advice from a friend, family member or management insider is sugarcoated to protect relationships. An outsider will provide a much more objective and honest assessment of the situations facing the business.
Likewise, having professional advisors who already work for you, such as your lawyer, banker or accountant as BoA can have its own pitfalls. These advisors are already working for you and may not offer the needed objectivity, due to having an interest in generating future business from your company.
An essential and critical characteristic of a good advisor is that of being an informed listener. Other qualities include honesty, objectivity, specific knowledge outside your skill set, good reputation in his/her field and/or community, and being well connected with networks that can be leveraged to provide assistance.
One should carefully evaluate the cost of organizing and engaging a group of advisors to ensure that each is able to contribute. An owner/CEO should consider advisory board prospects carefully early on, even if no immediate action is taken to put them on the board. In addition, always keep an eye out for knowledgeable and experienced experts who might, in due course, be a good candidate for a spot on the board.
When looking for potential customers, sympathetic bankers, well-heeled investors, or talented new employees, the advisory board can provide a wealth of information. Sometimes a brief introduction by an advisor is all it takes to open doors that may have been otherwise closed, or provide access to resources that may not have been available without their assistance. So long as the BoA is sincerely committed, success is much easier to achieve.
Once a potential candidate has been identified, send a letter inviting the person to participate on the board. The invitation letter should explain how the business owner expects to benefit from the candidateâs knowledge and experience.
Prospective candidates should mesh with all the other personalities of the other advisors, including that of the business owner. It can be politically difficult to release someone from a board, so instituting a policy of short terms of service is advisable. Terms of one year are typical. Toward the end of the term, extend an offer to the advisors you want to continue and allow the terms of others to expire.
Be explicit as to whether any kind of honorarium is involved. One suggested formula to calculate compensation is to take the owner/CEOâs hourly or daily salary (excluding bonuses) and pay board members for their time at that rate. Always assume prep time is equal to meeting time. Arranging for compensation communicates that the time the advisor is devoting to the business is respected and valued.
It is highly advisable that all advisors be required to sign a non-disclosure and/or non-competition agreement. While this may sound excessive, such documents are necessary to ensure the confidentiality of all business-related discussions.
A seat on the advisory board doesnât give business owners 24-7 access to the advisor team. Never assume that prospective candidates will be available âon callâ whenever needed, unless a pre-negotiated agreement has been arranged stipulating this type of access. Consulting with individual advisors is fine on occasion, but the real benefit of an advisory board is derived from meeting with them as a group.
It is recommended that the board meet quarterly. Arrange a mutually convenient time and offsite location, away from all distractions. Provide for a pre-meeting dinner as a night before social agenda. The meeting itself should not run more than half a day. Prepare an agenda that addresses priorities without being excessive. Critical outcomes should be measurable (see box) and all agenda items should be based on the companyâs strategic plan. Make the meetings interactive â minimize presentations, maximize feedback. Be sure to include plenty of time for questions, both to and from the advisors, as unexpected issues may arise on which the board has an opportunity to collaborate.
To establish a board of advisors, here are some simple but important steps:
â¢ Limit the board to three to seven members.
â¢ Prepare an invitation letter, acceptance letter and decline letter.
â¢ Create a charter and terms of agreement.
â¢ Have a clear, written description of the role and responsibilities of an advisor.
â¢ Have clear, written goals and objectives for the board.
â¢ Scribe a record of the proceedings of board meetings.
â¢ Ensure meeting materials are prepared and sent out well in advance of meetings.
â¢ Have a formal and standardized agenda.
â¢ Stick to the agenda (that means starting and ending on time).
â¢ Plan in advance for the quarterly meetings (schedule a year in advance).
â¢ Run the meeting as any other professional meeting.
â¢ Create an action plan.
â¢ Provide post-meeting follow up.
The first action step as an owner/CEO is to admit you donât know everything. This is generally the most difficult first step. While business owners are experts when it comes to running the company, sooner or later issues arise indicating that thereâs a great deal to learn about trends and market forces in the corporate world. At that point, it is essential to have access to the combined experience and contacts from men and women whose skills and talents complement and expand those of the business owner.
Taking the time to put together a valued board of advisors will pay dividends throughout the business for years to come.
Debbie Womack and Jim Taylor are principals of Greater Yield Ltd., a consulting firm that works with boards and senior management on performance improvement and organizational transformation. This article originally appeared in the Second Quarter 2014 edition of Directors & Boards.
Measuring an advisory boardâs value
As owner/CEO there are two types of performance indicators that measure the effectiveness of the board of advisors. The first is operational measures that provide an immediate sense of return on effort. The second involves longer-term measures of actual outcomes that provide the ultimate test: âDid the advisory board help make the company more successful?â
â¢ Quality of discussions at meetings
â¢ Degree of preparation for meetings
â¢ Attendance record of advisors
â¢ Post-meeting follow-up with the CEO, including further input
â¢ New ideas generated
â¢ Degree of camaraderie and teamwork
â¢ New competitive and customer intelligence
Actual outcome measures
â¢ Sales/revenue growth of the firm
â¢ Profitability improvement
â¢ Successful recruitment of key management
â¢ Financing raised or financing agreements negotiated, if needed
â¢ New products or services launched
â¢ New alliances or partnership agreements formed
â Debbie Womack and Jim Taylor