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Make the Most of Your Resources - Start an Advisory Board

Pablo Hafner OPEN Forum

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July 16, 2009

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Legislation requires publicly traded companies establish a Board of Directors to set medium and long term business objectives. A Board is the formal representation of a company’s governing body and Board members have a legal obligation to contribute to the company’s operations. But if you are not a public company, or just starting out, you should still consider setting up an Advisory Board to reap benefits that can contribute to the long term growth of your business.

The Role of the Advisory Board

With resources an ever-present problem for most companies on a growth track, especially in the current economic environment, an Advisory Board can contribute toward the strategic development of your business. For many entrepreneurs, an Advisory Board can make advice and support within easy grasp when fast action needs to be taken. Your Board members may act as mediators when the opinions of partners or key stakeholders differ, as well as shape and promote the company’s role within the larger context of its industry, even the overall economy. Most business owners are too busy with the operational details to think about this larger context; for this reason alone, an Advisory Board can prove invaluable.

The Advisory Board’s main function is to supply the necessary resources and instruments for proper development of the business. Because they manage the long-term strategic goals, collectively, they should provide you with access to relevant social and corporate networks that will complement your existing strategic resources. The Board should oversee the business in a way that is fully detached from day-to-day operations; however, these external resources should also be aware of the daily management issues to forestall any negative impact on long-term operations that could result. Thus, external advisors help separate the strategic from the operational levels of corporate decision-making as well as contribute objectively and independently to meeting the goals set by the owners.

Choosing Your Board Members

An Advisory Board cannot operate properly without including advisors who are external to and independent of the management and ownership of the business.

External talents contribute to proper operation of the Advisory Board with their independent, objective point of view, free from family links or emotional ties. As mediators, they serve to lessen misunderstandings or confrontation between partners (or family members in the case of family-owned businesses). Independent advisors are expected to improve communication, contribute to the business view with objectivity and independence, and help owners work optimally so that they achieve the company’s mission. It is important that Advisory Board members be diversified in terms of the functions, skills and interpersonal characteristics of its members. Taken as a whole, members should have all the necessary capabilities to direct the company and form a cohesive unit that can work together towards a common goal.

When considering external members for your Board, consider the following:

The ideal size for a first Advisory Board should be between 5 and 9 members, an odd number ensures agreement will be reached should members be divided among a certain issue.

The Advisory Board should consist of functional experts with specific knowledge relative to what the firm does, and also generalists who serve as team facilitators.

In order to ensure objectivity, independent board members should be nominated according to an organized process. A main motivator for most board members is the challenge that this exciting activity poses, however, in some cases visibility and the enhancement of their reputation as a respected decision-maker might be suitable to entice an experienced Board participant.

Typical roles of individual members usually include:

Chairman - The role of Chairman should be filled by an experienced generalist. This person will be in charge of leading the board and directing its activities to ensure they are in line with the goals and mission set forth by its owners.

Facilitator - If you’ve taken pains to ensure a strong cultural and professional fit for your board members, but it still lacks cohesion, a process facilitator should be appointed. This appointee would likely be a former CEO, with a strong background in organizational and motivational skills whose main function is to influence and streamline the strategic-decision-making process. If your company already has an external Chairman, this person may be able to play the role of the team facilitator.

Project Manager - Similarly, you can also consider appointing a project manager before you hire any other Board Members. This should be a person you trust to identify, appoint and have access to the diverse knowledge base and roles that have been identified by its owners.

Board Members - Directed by the Chairman, these individuals lend their skills, abilities and resources toward overseeing and directing the business.

The Issue of Control

Many business owners are reluctant to establish a governing body for their business because they don’t want to give up control. However, as market conditions change, you may find that you need outside expertise to help get you through a period of uncertainty that you may not have expected. You need to be prepared for all manner of crisis situations, including the current economic downturn which caught many business owners unprepared. You can only grow to the extent you have resources, think of an Advisory Board as a way to expand your resources with little to no investment. Your Board is your team, they are working for you.

You are entrusting this body to efficiently supervise the development of your business, manage it objectively and with a long term orientation. It’s worth it to invest a little time and energy in identifying the right people now, so you can get on with focusing on what you do best.

Pablo Hafner has been a Managing Director of multinational companies across Europe and has advised companies in the US, Canada and Europe about governing structures, strategic renewal and business rejuvenation. He is the author of various international publications and is a sought-after speaker and contributor to several books in the field of family business and corporate governance.

Photo: OPEN Cardmembers John Christakos, Maurice Blanks, Charlie Lazor, Blu Dot, Members Since 1997

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