Advisory Boards - A Bridge and a Destination
I write this article from three perspectives.
The first, as an Advisory Board member, I serve on the advisory board of the Centre for Advanced Mediation Practice, India’s leading private mediation institution.
Second, as an entrepreneur, I’ve established an Advisory Board for Vahura and benefited tremendously from the counsel provided by our advisory board members.
Lastly, through Vahura Onboard, we help organisations select and appoint advisory board members and non-executive directors.
In all three roles, I’ve experienced the tremendous value that Advisory Boards can bring to an organisation and its leadership.
Companies are statutorily required to have a board of directors, and some companies (listed companies, large unlisted companies) are required by law to have outsiders (independent directors or non-executive directors).
An advisory board, by contrast, is purely a voluntary decision. The common factor is that you are constituting an external group to advise the leaders of the organisation.
Advisory boards are not for everyone. A functioning Advisory Board, takes top management bandwidth, and a certain level of organisational discipline.
This is different from ‘name-lending’ advisory boards, where the company gets high-profile personalities, who don’t actually get into the business or play an advisory role. Consider the following questions to determine whether you are ready to build an Advisory Board
Are you past the survival stage, and have the resources and time to purposefully build for the future?
Are you willing to open up your business and strategy to ‘outsiders’?
Are you ready to go beyond your current comfort zone?
If you’re answer is a yes to all three questions, you’re ready to build an advisory board. If not, it may be prudent to pause and ask the question – why do I want an Advisory Board?
A) Better decision making: The Outside-In Objective View
It's lonely at the top and leaders run the risk of becoming too insular.
An external group of experienced advisors, can act as an objective sounding board and brains trust.
This will help test the merit of an idea, offer new perspectives or information, and ultimately improve the quality of decision making.
B) Enhanced reputation and reach: The Network Effect
A high profile name on your advisory board certainly enhances the reputation of your organisation, and helps punch above your weight.
What is even better, is to have Advisory members, who are willing to put their networks to work for you.
We recently had a client, who operated in a highly regulated sector. The client brought on board, a retired government official, whose reputation and network, made it easier for the organisation to navigate the regulatory issues. Advisory board members, can also help make introductions to clients, investors, advisors, and even potential employees.
A word of caution: Some people are reluctant to activate their networks. It is important to clarify this expectation and ascertain to what extent the advisory board member is willing to be your evangelist.
C) Better corporate governance: The bridge to a professional board
For companies who are unaccustomed to having outsiders on the board of directors, the advisory board, can be a stepping stone to running a professional board. Structured advisory board meetings, with a clear agenda, where business information, risks and strategy are discussed, help set a culture for professional board meetings.
For companies that are required to have independent directors, advisory board members, provide a ready pool for future independent directors of the company. Given the greater liability that comes with a director position, an advisory board stint, gives the individual the comfort and familiarity often required to commit to a full fledged director role.
A word of caution : It is important that the advice of the Advisory Board or its members is non-binding and merely persuasive.
If the board of directors or top management is “accustomed to act” according to the dictat of the advisory board or its individual members, such advisors will face the same level of liability as that of a director or officer of the company.
There are no prescribed methods or set market practices (especially in India) for remunerating advisory board members.
However, some of the common practices that we see in India are:
Pro-Bono: For early stage companies and not-for-profit organisations, in particular, we do see Advisory Board members, who do not charge a fee. The organisation does make an effort to reimburse expenses, or provide travel and food on the days of the Advisory Board meetings.
Charitable Contributions: In some cases advisory board members (often friends or family) find it awkward to charge a fee. In such cases, we’ve seen the organisation make donations to a cause that is supported by the advisory board member.
Sitting Fees: The most common practice is to pay a fee for every meeting attended by the Advisory Board member. This is typically done after contemplating an annual schedule of meetings, with a clear assumption of how long a typical meeting would take. Some of the meetings may be individual, while only one or two meetings, involve the collective advisory board. The fees are paid on a monthly or quarterly basis, depending on the frequency of meetings.
Stock: We do see start-ups and early stage companies offer stock to Advisory Board Members. The range is typically from 0.1% to 1% of the overall shareholding of the company. Stock options are not as popular, due to regulatory restrictions in India.
Commissions: Companies are happy to offer commissions especially if the advisory board member has helped the company generate business, raise funds, increase revenue or reduce costs. Unlike director remuneration, we do not see commissions paid out that are linked to the overall profitability of the company.
Holding yourself to a higher standard, is ultimately the only reason you should have for building an Advisory Board.
It is also why we feel scared or vulnerable, when we start thinking about putting such a board together. It forces us to move beyond our comfort zone, open up to our mistakes, and make a commitment to grow. This is true of any form of mentorship, of which the advisory board is a particular form.
In the words of Seth Godin – "…it works because the person with a mentor has a responsibility to stand up and actually get moving. The only way to repay your mentor is by showing the guts it takes to grow and to matter.”