Thursday, 23 January 2020

Advisory Board: Option or Compulsion



The privilege of having access to top-notch advice can increase the odds of success for an already established business and even for a startup. To achieve this, increased attention is being paid to advisory boards (1). Advisory board is a committee or group of business executives who are appointed by the owner or the management of an organization to provide leadership, support, and constructive feedback as well as providing recommendations on specific areas (2).

Selection of members of the advisory board is based on the expertise needed or voids needed to be filled within an organization. For example, an organization can hire a lawyer for legal matters, a public relation executive for branding and marketing purposes, an industry specialist for in depth business knowledge, and/or an investor for fundraising advice (3). Unlike the traditional board of directors, members of the advisory boards have no powers and obligations (4). The President or CEO of an organization typically reports to the board of directors, whereas, the instituted advisory board serves as an advocate, supporter, and resource for the president and/or CEO (5).

Although their influence on the management cannot be sidelined but they are never really involved in the decision making process and are not entitled to impose any obligations on the management of the organization (4).

Advisory board members are appointed under the following criteria (4):
  • Do not represent owners and shareholders 
  • Typically appointed by the managing director of the company 
  • Functions independently without any obligations 
  • Provide advice and assistance to the managing director 
  • Possess versatility in the composition 
  • Do not represent replacement to an official statutory board
  • Never takes part in decision making process 
  • A reservoir of business intelligence and insight due to experience.  


Depending upon the requirements of an organization, advisory board can be categorized as (5):  
  • Informal advisory board: Organizations with limited budget usually have this type of an advisory board. These boards typically involve a group of volunteers with a very ad‑hoc style of discussion. Having such advisory boards can produce positive outcomes specially for the businesses that are in their germinal stage.
  • Formalized advisory board:  It is recognized by having a presence of an independent chair, a charter, minutes and annual impact measurement. Primarily, this type of advisory board consists of two internal directors, a Certified Chair, and two external advisors chosen specifically to fulfill the priorities included in the charter. Meetings are held on a quarterly basis, whereas the chair and directors meet more frequently. 
  • Formal project advisory boardThis type of advisory board is instituted with some specific purpose and for a fixed period of time which could range from 3 to 18 months.
  • Formal corporatized advisory board: This type of advisory board is somewhat similar to the formal project advisory board, in an organization where governance board is already in place. The charter in this type of board usually expresses the reporting mechanisms and where it stands in relation to the already established governance board. Multinational operations, commercialization, and innovation typically uses this corporatized board.
Although advisory boards are flexible in their composition, it is of great importance to provide a good infrastructure to the advisory boards, so as to make them work effectively. Some of the considerations while establishing an advisory board might include (6):
  • First is to determine the mandate of the board. 
  • Mandate should explicitly state the roles, responsibilities, and target the areas to be advised.
  • Develop policies on how deliberations of the board would take place. 
  • To have minutes of the meeting in order to confirm compliance of the advisory board with the mandate. 
  • Organizations should have it on their websites the relationship that exist between the involved parties.
  • There should be a formal agreement between the advisory board members and the organization.  
An advisory board could prove beneficial to a business or even to a startup, especially in situations where the owners do not possess much experience or intent to expand their knowledge base surrounding the business (7). In addition to this, an advisory board could provide an organization with the following advantages (8): 
  • Increased credibilityWith the help of an advisory board, a business/business owner can help increase legitimacy in the marketplace.
  • A bigger networkWith members from varied disciplines and with vast experience, advisory boards help organizations in expanding their network. For example, suggesting a vendor or selecting a new employee. 
  • Focus on the futureWhile the organization is dealing with day-to-day operations, advisory board remain focused on future prospects for the organization.

Despite many advantages that an advisory board has to offer, it does have some concerns associated with it. One of the most important one is that it has no legal responsibility which might result in generating an advice which may prove to be unsafe for the business (7).  Instituting an advisory board may demand personnel and organizational investment (9). The members of the advisory board are usually required to work at little or no compensation which would result in indifference and/or lack of commitment towards the organization by the members of advisory board (7). It is quite common for an individual to be on a board with a different organization at the same time which can create a conflict of interest (7). 

While an advisory board does poses potential to provide a path for a superior corporate governance (1), it is of great importance to get the purpose fulfilled by instituting an effective and productive advisory board for an organization. Realizing the needs and having a target set is what makes an organization look for members to be on the board of an advisory panel. Only if managed efficiently, advisory boards can do wonders, if not, it can hamper the growth and reputation of the organization in the market.

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If you have any queries, email us at hello@turacoz.in 

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