8020Info Q&A: Advisory Boards

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8020Info Q&A: Advisory Boards

What is an advisory board?

An advisory board is a group of outside experts created to help companies make informed and objective business decisions as well as provide fresh ideas, opportunities and contacts. Advisory boards offer talent, expertise and experience that your company may not be able to afford to hire or that is lacking in current management. Advisors can provide guidance and mentoring throughout the growth of your company.

What is the difference between an advisory board and a board of directors?

The main difference between an advisory board and a traditional board of directors is that advisors do not have a legal obligation when making decisions.

When a company incorporates, it is required by law to have a Board of Directors that acts in the best interests of the company's shareholders and provides accountability. Advisors, however, give non-binding advice and hold no fiduciary or legal responsibilities. Advisors are expected to act in the interests of the company to maximize your value and increase your success. Advisors do not have veto or controlling power and normally do not require insurance coverage for liability.

Advisory Boards are more informal than a Board of Directors in that they can be more flexible in size, length of term and responsibility. They do not have to have regularly scheduled meetings, and advisors are often retained for their services and contacted when needed.

Does your company need an advisory board?

An advisory board is recommended for companies that are experiencing rapid change or growth, or at any time where outside expertise would be beneficial.

Who should sit on your advisory board?

Advisors should be "customized" to fit with and complement the needs of your company's management. Advisors can provide expertise in areas that are lacking in your organization - technical development, taxation, legal concerns, or sales, for instance.

When creating an advisory board, look for diverse experience and expertise. Advisors should be people that you respect and whom are leaders in their field. There is a division of thinking with regards to the practice of inviting leaders from outside as well as inside your company's field. Regardless of your preference, select advisors who have experience in the areas where your company is heading.

Should you pay your advisors?

Small business advisors are not always paid - they may have a personal or business interest in your company and may be willing to help out for goodwill, expenses and/or a small stipend. With larger companies, advisors are usually paid, often on a per meeting basis. It is important to compensate advisors adequately according to their level of involvement and responsibilities.

How often should you meet with your advisors?

Meeting schedules vary as to the needs of your company. On average, try to coordinate at least a quarterly meeting of the advisory board.

How is an advisory board structured?

Advisory boards can be structured two ways: An advisory board can be a group of experts and consultants who are willing to be associated with your business and be referenced as advisors. These advisors might give you their input one-on-one. Alternatively, an advisory board can be three or four individuals who operate almost as a board of directors, meeting periodically as a group to form a sounding board for you and your management team.

How many people should sit on an advisory board?

Advisory boards do not have to be large teams, and should be composed based on the needs of your company. In general 3 to 5 members is adequate though some run as large as 10 members.

If you would like more information on Advisory Boards, please contact us.