Advisory boards serve a unique role for businesses. Distinct from a board of directors, who are responsible for company performance and conformance with legal and regulatory requirements, an advisory board can more freely critique the business, draw from their expertise to offer insight, and act as a sounding board and support to owners and managers.
However, it is crucial that an advisory board is well structured with a clear remit and defined responsibilities. This not only ensures the successful functioning of the group, but will assist in maintaining their impartiality as advisors rather than decision makers.
Guidelines for advisory boards
Develop a job description to clarify the responsibilities, activities, expectations, and limits on the authority of the advisory body and individual members. This should be shared not only with prospective members, but also with the board of directors, management and staff that might be impacted by, or engaging with them.
While advisory board members technically have no legal liability or legal responsibility, it is advisable to confirm the role of advisory board members in a charter, engagement or employment agreement stating the limitations on their authority and the non-binding nature of their advice to avoid any confusion about their role. An advisory board should represent a select group of ‘independent’ people. We explore the legal risks associate with poorly structured advisory boards in Part 6.
Distinguish between governing and advisory board roles. Determine if one or more advisory boards are required. Draw an organisational chart to show lines of communication for each advisory board and where they fit in the organisation. Larger or complex businesses might include multiple advisory bodies, such as a Program Advisory Committee to spearhead a specific project and a Council of Advisors to share expertise with the board and CEO.
Naming can also be a useful tool to distinguish advisory boards from each other, and from the board of directors. For example, ‘council’ or ‘committee’ denote something different to ‘board’. Select an appropriate chair/leader. Consider whether an internal or external person should lead the advisory board, the message this sends, and the talent it will attract.
An advisory board does not need to have frequent meetings; however regular contact, whether in person or via email or video conferencing, is important. A meeting schedule will be dependent on the issues that the advisory board is helping with. Some may require monthly meetings while other issues may be better suited to quarterly or 6-monthly meetings, on a project by project basis, or undertaken with individuals in the group.
A key consideration for an advisory board is appropriate compensation for their time commitment, which has the added benefit of incentivising them to help grow the business. At the simplest level a daily fee (plus expenses) is standard for meeting attendance. If there is more to the role than occasional meetings, it may be appropriate to negotiate a monthly or annual retainer for adhoc access and assistance between meetings.
It’s important to periodically review the benefits and performance of your advisory board and its members. If the group isn’t achieving its goals, the business should consider disbanding the advisory body, and asking members to serve as individual advisors to leverage their talents without the additional pressure of maintaining an ineffective collective body.
Read Part 1: Advisory board vs board of directors – defining the difference
Read Part 2: Do you need an advisory board?
Read Part 3: How to set up an advisory board