What is an advisory board (board of advice)? An advisory board is a select group of “independent” people who provide advice and support to the owners/ shareholders/directors of a business. They provide nonbinding strategic advice to organisations and hence are informal in nature. This gives greater flexibility in how they are structured and managed, when compared to a board of directors.

Whereas formal boards of directors have legally defined responsibilities, advisory boards are not regulated under the Corporations Act or corporate governance codes. Advisory boards advise. They do not make decisions like a formal board. However, calling a board that has a governance function an ‘advisory board’ will not preclude its members from their legal duties.

Why establish an advisory board? An advisory board enables the owners or managers of the business to have access to an independent view and/or a “safe” place to discuss issues of major significance. The role of the advisory board will evolve over time, but it is useful to document a charter to provide some direction for its members.

In today’s business environment the rate at which business leaders learn is an emerging competence. Establishing an advisory board (learning forum) is a simple mechanism to access external wisdom, and focus learning specifically around the business and the needs of the owner/MD’
Ben Kehoe, Director Industry Consulting Group Oct 2009

The role of an advisory board

  • Provide an independent source of information and advice to the owners/directors on strategic issues or risks confronting the business
  • Create a “learning forum”
  • The advisory board is not a decision-making forum

Each company will need to determine the roles and responsibilities of its advisory board to best suit its particular circumstances and needs.

Suggested roles and responsibilities for advisory board members include:

  • Develop an understanding of the business, market and industry trends
  • Provide “wise counsel” on issues raised by the owners/directors or management
  • Provide the directors and management with insights and ideas which can only come with distance from the day-to-day operations
  • Encourage and support the exploration of new business ideas
  • Act as a resource for executives
  • Encourage the development of a governance framework that enables continued growth, whilst not stifling the spirit or vision of the founders
  • Monitor business performance and challenge the directors and management to consider options for improving the business

When would a small or medium business need an advisory board?

Every company will be in a different stage of their ‘SME growth journey’. So at what point does the owner or manager recognise that an advisory board can be a powerful resource?

Benefits of an advisory board

  • Draw on the skills and knowledge of directors/advisors who have practical experience in growing a business
  • Enhance the company’s reputation and credibility in the marketplace
  • Increase consumer and investor confidence
  • Attract superior employees by demonstrating a commitment to company growth
  • Create a potential source of members for the ‘main’ board as the company grows
  • Test the quality of “outsider” contributions to the business (for family companies)

When would a small or medium business need an advisory board?

An advisory board may prove a valuable resource in any multitude of scenarios, including the following:

  • A company experiencing rapid growth
  • A company needing to raise funds
  • A company wanting to build strategic partnerships
  • A company facing major decisions and/or changes in direction, including entering new markets, products or geography
  • A company establishing more formal structures involving professional managers
  • A company dealing with succession issues
  • A company managing the development stages in the business and assisting with staff development
  • A company facing challenges with other shareholders
  • A company wanting to raise the level of strategic conversation in every aspect of the business
  • A company with specific technical and functional issues

Selecting an advisory board

Selecting advisory board members is a very important task - and a number of questions emerge from the process. Perhaps the three key questions are:

  • “Why am I doing this”?
  • “What input do I need”?
  • “How can this person supplement/complement our existing skills”?

In addition to specific business development issues, there may be family or staff development issues to address.

Essentially there is no single answer; each owner/director has to consider the particular needs of the business at that time. Specific considerations may include:

  • Independent thought: Where can I source the best advice from someone that understands my business and the environment I operate in? Will members of the extended family, such as a spouse or older children offer a new perspective, or will I need to look externally? What if they work in the business? What about other senior staff? What skill gaps require filling, such as strategy, human resources, marketing, legal, technology, operations and finance?
  • Value congruence, or culture fit: A shared commitment to the development of the business and your own personal development. This implies a level of trust and respect beyond ordinary business relationships.
  • Wisdom and courage: Advisory board members should be people you respect as much for their personal qualities as for any technical competence they may offer. Advisory board members need to “say it as it is” and feel comfortable in the event that the owner may reject the advice in pursuit of their own business agenda.