How to Establish an Effective Advisory Board
The role of an Advisory Board
The role of an advisory board varies from organisation to organisation and will depend on the circumstances and reasons for its establishment.
The advisory board might be appointed for a particular matter, or it may have an on-going role within an organisation. The role of the advisory board can change with time and circumstances.
Why have an Advisory Board?
An advisory board can provide advice to the board of directors to enable the board to make decisions on a range of matters, such as:
- Business development and networking opportunities through the experience and expertise of the advisory board members
- Taking the organisation to the next level (e.g. ASX listing or raising capital)
- Business improvement
- Identifying new business opportunities
- Acting as a sounding board to management
- Considering options to remunerate management
- Providing an independent view and ‘sanity’ check on a proposal
- Succession planning
- Risk management practices
- Long term strategy
- Board structuring
- Establishing and implementing a good corporate governance framework
- An advisory board can add to the organisation’s credibility in various markets.
When and how to establish an Advisory Board
Often in small business, one or two people will be on the board, an MD and/or shareholder/s.
Hopefully, over time there is a successful business growing into a large business. With growth comes the possibility of expanding the board or establishing an advisory board.
There is no single way to establish an advisory board, no set role for an advisory board and no set time, or stage in the development of the organisation, when an advisory board should be established.
However, there are things you can do to create an effective advisory board, and it is a good idea if the organisation looks to external experts and advisors, especially during a period of growth.
10 tips for establishing an effective advisory board
If you get the advisory board’s role and structure wrong this could deter people from accepting such a position.
- Ensure the organisation can establish an advisory board. This may require changes to the constitution. The advisory board should not be set up as a committee or sub-committee of the board. If the advisory board is not set up correctly, then the advisory board members risk becoming shadow directors or de facto directors with the consequential liability that flows from that position.
- Have a charter for the advisory board that sets out the advisory function and emphasizes that the advisory board and its members at all times remain subordinate to the board. Make it clear that the advisory board and its members cannot attend or participate in board meetings except in a reporting capacity.
- Ensure the board of directors is the ultimate decision maker and can choose to accept, reject or modify any suggestion, guidance or advice from the advisory board. Prohibit the advisory board members from participating in decision making to avoid the risk of liability.
- Get the right people on the advisory board (e.g. lawyers, accountants, financial, HR, IT, marketing and management people with success in the industry. Also get entrepreneurs, trusted advisors and people who have successfully been on other boards). But don’t let it get too big. The size of the organization will affect the size of the advisory board but generally speaking an advisory board of three with the right mix of people and experience is about right.
- Have a letter of engagement for each advisory board member which includes a term, the time likely to be involved, the number and frequency of meetings, and remuneration.
- Have rules for the operation of the advisory board (e.g. retirement, quorum, resolutions, convening meetings, etc).
- Have rules for conflicts of interest and disclosure of conflicts of interest.
- Require the advisory board members to comply with similar obligations in relation to confidentiality that would apply to officers of the organisation. Other issues that may need to be considered are inside information and trading in securities in some circumstances.
- Arrange regular and frequent meetings of the advisory board with notice of meetings, adequate disclosure of information to enable informed decisions to be made, agendas, a chairman, a secretary and minutes, and proper meeting procedures.
- Keep the advisory board members fully and promptly informed of developments in the organisation. A good starting pack of information could include the organisation’s constitution, strategic plan, business plan, last year’s financial report, this year’s budget and management accounts. Don’t worry if they are not readily available, that may be one of the reasons for establishing an Advisory Board.
By following the above tips, you’ll be on your way to establishing an effective advisory board that will give credibility to your organisation and provide a network and opportunities that may not have been previously available.
Our guest blogger, Stephen Doyle, is a legal practitioner at Warren Syminton Ralph, a law firm that provides legal advice and resolutions for property and commercial transactions.