Shedding Light on the Role, Purpose and Construction of an Advisory Board
How can Boards ensure that businesses remain nimble by having access to, and rapidly embedding, best practice to de-risk transformational change. Can you design an Advisory Board that promotes ingenuity and expediency particularly for young entrepreneurial businesses?
By Ian Jenkins, Victoria McQueen, Robin Gray and Jo-Anne Cowley
We have worked with many clients creating and realigning Advisory Boards particularly for young entrepreneurial technology businesses and fund managers. Over the next few weeks, we look forward to posting a series of short extracts from our Quarterly Insights: Shedding light on the Role, Purpose and Construction of an Advisory Board covering:
Why and when to create one
What it is… and not
Who should serve?
The critical roles
Making them functional and successful.
Why Create an Advisory Board?
Most businesses decide to create Advisory Boards when it is apparent that there is a subject area where expert outsiders can augment the knowledge, understanding and strategic thinking of the Board and management team. Experienced Advisory Board members can provide technical or specialist advice and extend the range of skills. Importantly, thought should be given to the skills and experience required that complement those of the existing Board. Evidence and practice point to the need to take care to ensure that it does not mask or usurp gaps in knowledge or skills that rightly belong on the main Board. Advisory Boards can be a useful way for the main Board to challenge its own assumptions, particularly on specialist or technical matters. They are there to give focus to, or sometimes challenge investment decisions, sector focus and strategy. Advisory Boards provide functional and market intellect that Boards are not able (or are conflicted) to tap. Simply, a way of getting expert advice which may be difficult to access formally.
What Is an Advisory Board?
The Advisory Board is not a substitute for statutory boards of Directors and should not have authority over the governance or compliance of an organisation. The selection and oversight of management, monitoring of performance, approval of strategy and assessment of risks are all subjects properly reserved for the main Board. An Advisory Board can support the statutory Board by providing expert insight or contacts, but it must be clear where ultimate decision-making authority and collective responsibility lie. It does not assume a level of formality that a Board of Directors would.
The Board of Directors and the Advisory Board sit as separate but parallel bodies. This tees up Advisory Boards to have considerable freedom of manoeuvre in terms of makeup and remit. Absent governance authority or statutory responsibilities, an Advisory Board can meet less frequently, be consulted on an ad hoc basis as required, or focus on a narrower set of issues than the full Board must necessarily confront. They are a way of getting expert advice from a range of experts whom you might not be able to source in a more formal capacity.
It follows that an Advisory Board has the freedom to advise without the liabilities of those who sit on a statutory entity. This Board can then be more flexible and able to focus on a narrow set of issues. An Advisory Board is constituted to strengthen the businesses understanding on several topics, including technology, economics, demography, geopolitics but importantly brings item specific experience to accelerate learning.
Advisory Boards can be considerably more ‘light touch’ in terms of process so they are therefore free to concentrate on their core role, namely, to complement the main board by providing specialist experience, knowledge and contacts not readily available elsewhere. How they do so, and on what topics should be set at formation.
An Advisory Board adds value by exposing the executive team (and main board where relevant) to new thinking, improving understanding of a company’s markets, risks, and future drivers of growth, challenging assumptions and guarding against groupthink. Advisors can widen the networks of contacts and opportunities available to the business and so directly impact commercial success. It may well be prudent/valuable to seek Advisory Board members who can help develop business by accessing networks and ecosystems, opening doors, and making introductions. They act as a disparate group of interested specialists and advisors to the business leveraging real world experience…been there, done it.
Who Should Serve?
The composition of the Advisory Board will depend on your goals and priorities and the intellectual capital that you need to capture.
You need to attract talent with real world experience that understands all the challenges that come with working in a related sector across relevant geographies and culture, and with experience of senior level relevant functional skills. The main consideration for the composition of any Advisory Board is absolute clarity about what role it is intended to fulfil. Is it access to a specific network, technology, culture and geographical challenges? Advisors who understand different intellectual disciplines can provide insight into key economic and geopolitical challenges. This is the opportunity to introduce experience and capability that punches well above the weight of the current organisation and potentially improve the reputation of the organisation. You may want to consider hiring a “disruptive game changer” that can help the board think outside the box.
Finally, and regardless of the expected role of the advisory board, it should be expected that every member will have a real knowledge of and enthusiasm for the business particularly your purpose and mission.
The Critical Role of The Chair
Advisory Boards that have a clear remit and are constructed accordingly will struggle to succeed if they lack the clear leadership of an effective Chair. Perhaps the priority for any Chair is to determine the appropriate size of the Advisory Board. In fact, research would suggest that hiring the Chair is the first step in building an Advisory Board. The Chair can then lead the process to build it out as a functional unit and set the engagement terms.
Although Advisory Board meetings may not require the same level of preparation as a formal Board meeting, the Chair must set the tone of Advisory Board discussions. The Chair needs to create a culture where there is a real expectation that the papers have been read and those that come along bring ideas to the table, shape what is happening and really get stuck in. To make the Advisory Board function effectively, it is important for the Chair to establish and foster a good working relationship between the members of the Advisory Board, and the Main Board and when and to what extent with the Executive Team.
Making Advisory Boards Successful and Functional
Advisory Boards need to be clear about their purpose and how it engages with the main Board and broader company. I have seen examples of companies forming Advisory Boards and only then thinking about how they wish to use them. In doing so the organisation risks extracting little value from the Advisory Board. Therefore, setting and communicating the roles and expectations of individual advisors and articulating the mandate and purpose of the Board is essential. The Advisory Board must have an unambiguous mission and definition and expectation of commitment.
On appointment, it is important that the company and the Advisory Board members have a shared view of the time involved. Having agreed the commitment, both sides must stick to it. At one extreme, it is easy for ‘mission creep’ to develop so that Advisory Board members are called upon far more often than anticipated; or than the remuneration justifies. Equally, if there is too long between each contact, the individual members may become disconnected from the business and lose interest and focus. Generally, the relationships between the Advisory Board and organisation is informal and not necessarily face-to-face. Nevertheless, it is a good discipline for the Advisory Board to meet in person perhaps quarterly or twice yearly to bring together the participants in a boardroom setting and create a formal structure for the Board’s work.
The key engagement principles with the Advisory Board must be established. It should be clear who from the company can contact the Advisory Board, on what issues and through which channels. To ensure that contact is kept focused and at a high level, it may make sense to restrict informal contact with the Advisory Board to the Chair and Chief Executive.
An Advisory Board should be a resource that can usefully be tapped to aid the company’s success. It is helpful therefore, if the executive team can shape the agenda and highlight the topics on which they would like the Advisory Board’s advice and insights. Equally, to encourage pro-activity which can alert the company to relevant developments or important contacts.
Conclusions
An Advisory Board has the freedom to advise without the liabilities of those who sit on a statutory entity. This Board can then be more flexible and able to focus on a narrow set of issues. An Advisory Board is constituted to strengthen the businesses understanding on any number of topics, including technology, economics and geography/culture but importantly brings item specific experience to accelerate learning and execution.
An Advisory Board adds value by exposing the executive team (and main board where relevant) to new thinking, improving understanding of a company’s markets, risks and future drivers of growth, challenging assumptions and guarding against groupthink. Advisors can widen the networks of contacts and opportunities available to the business and so directly impact commercial success. There is no one way in which an Advisory Board should work. It may meet infrequently, providing high-level, long-term strategic insight to the board. Or its role may be more akin to that of a business development consultant, seeking to make introductions, open doors and generate new leads. Either way, the Advisory Board must be clear about its purpose and mission from the outset. And the Board should be structured, resourced and led accordingly. With a clear mission and the right composition, a Board of advisors can be a powerful, value-adding asset in a changing business environment. Overall, the constituency of the Board should be diverse and aligned to the business objectives.
Further Advice
Please feel free to contact us if you would like to receive advice on any aspect of our Insights, including remuneration levels, and the different types of Board constitution.
