Many privately owned businesses don’t have Boards of Directors since they don’t have outside shareholders there is no need to. However, having a Board of Advisors has been shown to result in a 3x greater growth in sales and profits than companies without them.
What is a Board of Advisors?
A Board of Advisors comprises 3 to four high-level executives who provide the CEO with advice and are focused on the CEO’s success. However, unlike a Board of Directors, the CEO doesn’t have to take their advice. Their role is to:
- Hold him and the management team accountable. We all believe we can hold ourselves accountable but fail miserably;
- Act as a coach;
- As the difficult questions or the questions no one is asking;
- Enable the CEO to focus ON the business and not IN the business – to stop the tyranny of urgency taking precedence over the important;
- Validate the CEO’s ideas and strategy; and
- Bring their experience to the company.
Many CEOs are dealing with their business their business issues and fighting fires. As a result, they don't get a chance to focus on the business and discuss ideas and strategies with people who have a lot of experience and can guide them. There is that old saying, "You don't know what you don't know" and a Board of Advisors can help the CEO navigate through such areas.
What is a Board of Advisors not! It is not a group of people to make introductions to potential sales targets.
Who should be on the Board?
The Board of Advisors is there to help you and should not have other interests, so it should not include advisors or consultants that you already use, i.e. your accountant or lawyer. Also, it is not necessary to get a marquee name that has retired. More useful is to get middle to upper management that has real experience with the issues the CEO is facing and from a range of industries. That way he can get the benefit of best practices across all industries and learn of new solutions to problems in the industry. As times change and the company faces new issues, the board should change to have a membership with experience with such issues.
Like a marriage, you need the right partners. These are people the CEO can rely on to provide good advice and like your doctor will see you "naked". Ideally a group with different skill sets that complement the CEO's skills and deal with issues currently facing the company.
How should they be compensated?
People often joke that Board of Advisors is just paid coffee, water and a bagel. Typically they don't work for much; however, it is advisable to pay them a stipend, i.e. $20k, even if it is a contribution to a charity in their name. Why? Because you are asking them of their time and commitment, and if compensated, they are more likely to return that urgent call when you have a crisis. Also they should all be paid the same.
Sometimes they also get equity; however, since many of the companies seeking a Board of Advisors are private, the company doesn’t want to give equity. However, synthetic equity works such instances. In addition, if you have a Board of Advisors and are raising equity capital, all the Board members need to have purchased equity in the business, as most Angel and Venture Capitalists will not see it as positive the Board of Advisors is not willing to invest.
How often should the Board of Advisors meet?
Typically, they should meet between four and six times a year. Not less than four, and if over four maybe the additional meetings should be telephonic. The meetings are often 4 hours as well as some preparation time of maybe 10 hours, so if you are asking for six meetings per year, you are asking for a commitment of 84 hours a year or two weeks.
When do you need them?
A small company can always use the independent outside input; however, they are especially useful when going through inflection points in the company’s life, or the marketplace is changing dramatically. When dealing with something the company has not faced before, the Board of Advisors can be invaluable to the CEO as he navigates a new course. If you realize you need one it is often too late. However, most important is that the CEO must believe that they will be beneficial, and the CEO must be coachable. If not there is no point!
Who should attend?
The senior management I believe to be best. However, not necessarily all at once! They can each attend as their area is discussed and reviewed. As a result, they are receiving coaching too, and the benefit of the Board's expertise as strategies are proposed and discussed. However, there should be just a time for the CEO as there are only things that can be discussed with the CEO, i.e. the perceived performance of a senior manager or the CEO's failure to live up to his deliverables.
Should there be agreements with them?
While they are not a Board of Directors, you should have agreements with them. These agreements need to set out, among other things:
- Pay – They know what they are getting.
- Time Commitment – They know what they are committing to.
- Liability – They know what to expect.
- Term – They can let them go when the company needs different skills with no difficulty
- Nondisclosure terms and non-competes as relevant – protects all parties.