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Work on Your Business, Not Just in It …
Why the Time Is Right for an Advisory Board

A recent article in the Wall Street Journal titled “Board of Advisers Can Help Steer Small Firms to Right Tack” describes how the owners of the 28-year-old company, OC Sailing Club, were stuck. They understood that their business was stalled and they could not determine how to get it back on track. After asking around, the owners created a board of advisors, and the company has started to thrive again.

Many closely held businesses consider establishing an advisory board, but few actually make the commitment of time and energy to do so. Why establish and maintain an advisory board, especially in this economic climate? Perhaps the better question is “Why not, especially now?”

Running a successful business is always a challenge, even more so in these fast-paced, ever-changing and economically uncertain times. That’s why an increasing number of business owners and managers are looking outside of their businesses to obtain critical third party advice and counsel from experienced advisors. If you are ready to work on your business as opposed to in it day-to-day and are willing to make a long-term commitment of time and resources, an advisory board could be the key to breakthrough performance and results.

Too often we look inward for the answers we need. An advisory board can bring objective real world experience and insight to help business owners and managers challenge assumptions and chart new courses. At the same time, their involvement will also help hold everyone accountable for commitments made and results projected.

The advisory board is not intended to be the board of directors of your company. There are several important differences between the two.

Advisory Board	Board of Directors
Not mandated or controlled by law	Required by statute
Advisors appointed by company leadership	Directors are elected by the owners of the company
Responsibilities as determined by leadership	Specific obligations with fiduciary responsibilities and liabilities
Offer nonbinding ideas and make recommendations	Decisions bind the company

The advisory board also does not replace the business owners or managers or supplant their responsibilities. They are still expected to make decisions, to lead and to provide a strategic vision for the business.

You have come to the realization that you can benefit from an advisory board. Now what?

There are several elements that go into creating an effective advisory board. The most important, from our experience, include the following:

• Developing the charter
• Finding the members
• Investing the time and resources necessary to make it work

In the OC Sailing Club example, the CEO was fortunate that he had a peer group that could help him find advisors. However, before he got to that point, he had to clearly articulate the role that he wanted them to play.

We fully recognize that many business owners and managers might not know how to begin, let alone how to keep an advisory board on track to achieve the anticipated benefits. Below are some suggestions intended merely as an overview of the process to be followed. If taken one step at a time with a determined commitment, the process will unfold in a methodical way and come together effectively.

Beginning the advisory board development process with a written charter is important so that the business owner and managers and potential advisors will understand the purposes and anticipated benefits of the advisory board, the areas in which members will be consulted, the number of members, their desired backgrounds, meeting schedules and compensation to be provided. Also important is a clear statement of the respective roles and responsibilities of the business to the members (e.g., providing members with meeting agendas and appropriate materials sufficiently in advance of meetings) and of the members to the business (e.g., time commitment and advance preparation). While the first few iterations won’t necessarily be perfect, taking the time to prepare a charter will help set the stage for an effective and interactive advisory board.

With the charter in hand, you can then define the capabilities and competencies that you are looking for in the advisory board members. In order to extract the maximum value from the board, it is necessary to find not only the experience base you seek, but to also find people with whom you can work. What needs to be avoided are “yes men” and “prima donnas.” While you want and need to establish a working relationship with those selected, it is not in your best interest to populate your advisory board with your friends and professional advisors who you can always reach out to as desired. Rather, to ensure that the advisory board can both ask and answer the “hard” questions, look outside your usual circle and comfort zone.

Another important question that needs to be answered early in the process relates to compensation for advisory board members. While it is likely that the people you seek might not be motivated by the compensation, both you and the advisory board members you attract need to understand that you view the advisory board as critically important to the success of the business—in other words, that you take this very seriously and would like them to as well. Consequently, you should expect to pay a reasonable amount of compensation to each advisor, often in the form of a retainer and per-meeting fees.

Your foundation is set. It’s now time to find the people and get the advisory board moving. You will need to follow a disciplined approach to identifying, recruiting and engaging advisors. You should plan to both engage in informal discussions to initially gauge interest and then formal interviews to determine fit. Don’t settle. Find the right individuals for the long haul.

With the team assembled, the meetings can begin. Developing and sticking to a formal agenda are both key. Before you start down this road, you need to understand that it is rare that the first meeting will produce an “ah-ha moment.”

It should be noted that the greatest incidence of advisory board collapse is in the first year. Often, the second meeting lacks the excitement of the first, the third is perfunctory and the fourth never gets scheduled. That said, if you are willing to invest the time necessary to prepare for the meetings and the attention necessary to participate in the meetings, you are likely to reap great rewards from the advisory board you have created.

The Consultant Role

As mentioned previously, putting together an advisory board is foreign territory for many. An experienced consultant can act as your guide through the process. The consultant will help you to articulate your goals and should work with you to draft the charter. The consultant can also assist with the position descriptions, development of the initial list of potential members and, if desired, make the initial contacts to assess interest.

The consultant’s role should probably continue through the initial meetings of the board. For the initial orientation session, it is often helpful to have the consultant lead the meeting to ensure that the group is structured to achieve the results you desire. Generally, this first meeting is a longer session as you want to all get on the same page regarding the business, the strategy and your expectations of the advisory board.

While the frequency of meetings is up to you, most advisory boards meet quarterly. Your consultant should probably remain engaged through the initial annual cycle, both as facilitator and scribe. Your goal is to diminish the consultant’s involvement over time, to the extent that by the end of the fourth meeting, you no longer need the consultant to play these roles. It’s then truly your advisory board.

Questions?
Contact your Blackman Kallick representative at 312-207-1040.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.