Assembling an Advisory Board for your Private Company

Private business owners are increasingly seeking the benefits of Advisory Boards to provide independent and experienced counsel on complex issues such as exit planning, succession strategies, growth strategies, acquisitions/divestitures, etc. These advisors are often experienced industry veterans, CPAs, lawyers, consultants, or other trusted advisors and act as a “non-binding” sounding board for private company leadership.

For some entrepreneurs, success has come from working hard and by figuring out a lot of things on their own, so seeking counsel from outsiders can seem a little daunting.  However, as a business grows in complexity, the value an Advisory Board can bring to private company owner(s) increases exponentially, especially when it is carefully composed and structured to meet the specific needs of the business.

It is important to understand the difference between an Advisory Board and the Board of Directors (BOD).  Advisory boards can provide independent advisory services to the owner, the BOD, the CEO, or the senior management team, but do not have a fiduciary duty to the company and are not tasked with oversight of management on behalf of the shareholders.  They simply are there to provide independent counsel.

The first step in forming an Advisory Board is to define what guidance will be needed from the board.  This begins with a clear vision, mission, and core values statement that can be articulated to Advisory Board candidates to ensure alignment.  Understanding where you are headed will allow you to assess the experience and talent of potential advisory board candidates against how they may or may not be able to help you with your mission.
 
Focus on finding members that with help you with your “holes and goals”.

One way to consider candidates is to ask the simple question – “Are they ahead of me on this?  If for example, you see a path to growing your business to “X” million in sales, focus on potential candidates that have “been there and done that”.

Building on the concept of the board’s makeup and mandate, it is important to select candidates that will provide diverse opinions and therefore provide a healthy dialogue amongst board members. Look for candidates that will challenge the status quo with you, your partners, or with management and are not afraid of taking an alternative viewpoint.  The value of the board to company owners is in the diversity of opinions and the varied, independent counsel, that is not stuck in a narrow way of thinking.

While technical advisory boards are quite common for start-ups and high-growth specialized businesses (eg: pharma, biotech), mature company Advisory Boards need members with leadership and business experience in combination with members with specialized subject matter knowledge (depending on the mandate).

There are plenty of other considerations that need to be decided before forming an Advisory Board, such as how big the board should be, how it should meet (i.e. in person, virtual, one-to-one), how often it should meet, what time commitment will be needed for each member, and how will you compensate members?  Also, how will you help ensure your board members are successful?  It is more likely you will get high-quality advice when you provide the opportunity for the board members to properly prepare for meetings with a professional board package and a clear meeting agenda.   How will you communicate with board members between meetings, and who will take the role as board chair?

Finally, in the spirit of continuous improvement, you should always be prepared to change the makeup of your Advisory Board as the business needs change.
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Like most things in life, the more you put into something, the more you get out of it.  This applies to the formation of an Advisory Board, recruiting and selecting its members, and providing it the tools and resources to ensure it meets its objectives and ultimately drives value for the company owners.

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