Advisory boards

An advisory board is a body that provides non-binding strategic advice to the management of a corporation, organization, or foundation. The informal nature of an advisory board gives greater flexibility in structure and management compared to the Board of Directors. Unlike the Board of Directors, the advisory board does not have authority to vote on corporate matters or bear legal fiduciary responsibilities. Many new or small businesses choose to have advisory boards in order to benefit from the knowledge of others, without the expense or formality of the Board of Directors.

The function of an advisory board is to offer assistance to enterprises with anything from marketing to managing human resources to influencing the direction of regulators. Advisory boards are composed of accomplished experts offering innovative advice and dynamic perspectives. Meeting quarterly or biannually, boards can provide strategic direction, guide quality improvement, and assess program effectiveness.

Entrepreneurs, especially from startup companies or small business may not want to dilute their control of their business by establishing a board of directors with formal responsibilities and authorities. Thus, an advisory board may be a more suitable solution to entrepreneurs who want access to high-quality advice and network in the industry. Advisory board, as an external group, could also provide non-biased information and advice to entrepreneurs.

The main reason to create an advisory board is to seek expertise outside of the company. Advisory board members should provide the company with knowledge, understanding and strategic thinking of the industry or management of the company.

Companies should seek advisory board members whose qualities complement the existing board of directors and not mask gaps in knowledge or skill in the main board. An advisory board strengthens the existing board, but does not interfere with authorities of the existing board. The former editor of The Economist, also an advisory board member, once said, “They (advisory boards) are there to give focus to or sometimes challenge research and intelligence work being done in the company, thus avoiding groupthink and giving direction on big picture issues.”.

There are two key questions to be asked when creating and operating an advisory board. The first question is who is trying to achieve what from an advisory board. The second question is how the business of the board should be conducted. The following issues need to be addressed.

The type of advisory board members should be determined by the nature of what is sought and expected from them by the enterprise. Advisory board members should have distinctive knowledge on different aspects of business such as marketing, product development, sales techniques that are of use to the directors.

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