An advisory board: a powerful tool to grow your business

What is an advisory board?

An advisory board is a small group of people from diverse backgrounds who meet to provide strategic guidance and fresh perspectives on your business.

The term “advisory committee” is also sometimes used.

Advisory board or board of directors?

The choice depends on your needs.

The board of directors (BOD) is an official legal structure. Its members have critical legal responsibilities, such as acting in the best interests of the company with prudence, loyalty and transparency.

An advisory board is more flexible. It is created by contract and has no legal decision-making power. Its purpose is to advise you without imposing any legal constraints.

Companies with a well-structured advisory board stand out when they look for financing. This type of board functions similarly to a board of directors, but with fewer constraints and less governance. Members are generally willing to be actively involved in strategic decisions.

Often, companies have both: a board of directors for legal obligations and an advisory board for strategic advice.

The advisory board can help you throughout your company’s journey.

To better understand the differences between an advisory board and a board of directors, here is a comparison chart to help you choose the structure that best suits your business.

This table highlights the key differences between an advisory board and a board of directors, helping you choose the proper governance structure for your business.

Why form an advisory board?

An advisory board offers considerable advantages. It helps you evaluate critical decisions, explore new options and plan more effectively for the future.

Setting up an advisory board can be complex at first, especially for small businesses. It requires careful preparation and a certain amount of time, which many entrepreneurs feel they don’t have.

Your advisory board will allow you to:

• Bring experience that is different from your own
• Benefit from new ideas from people outside the company
• Get feedback on business strategies

You know that running a business takes a lot of effort and can sometimes be isolating. You are the one who has to make the critical decisions. But it’s not always easy to have all the skills and resources you need to move forward.

In today’s rapidly changing and increasingly complex world, it is essential to surround yourself with people who have the expertise your company needs. That’s why an advisory board is so important.

In some cases, setting up an advisory board can even help save a struggling business, especially when members decide to invest to support its recovery.

How should you structure your advisory board?

Even though the structure of an advisory board can be more flexible than that of a board of directors, being rigorous is still essential. Otherwise, the board may not achieve its objectives. Here are some suggestions for structuring your board effectively.

• Meet regularly, for example, every quarter.
• Bring up the strategic points you want to discuss.
• Prepare an agenda and write minutes or a summary of each meeting.

How do you set up an advisory board?

1. Prepare the committee structure

Before creating your committee, make sure you have a strategic plan in place, if you don’t already have one. This will help you define the direction you want your company to take and how you will achieve your goals.

Be sure to incorporate environmental, social, and governance (ESG) if this aligns with your values.

With a clear vision in mind, you can define the positions to be filled on the committee.

For example, you may want to seek out marketing expertise or someone with experience in international expansion. Ideally, these peoople will have skills that complement your own.

2. Recruiting committee members

For the best results, choose independent members and aim for diversity in both experience and perspectives. Studies show that mixed committees make better decisions and bring more value to the company.

However, finding members can be difficult, especially when you are just starting out in business, and your network is still limited.

A good place to start is LinkedIn. Look at profiles that could be of interest to your committee. For example, you could find experienced business owners, specialists in a field that is important to your company, or university professors.

There are several other ways to get started with your networking and recruitment projects, such as:

• Participating in activities organized by your local chamber of commerce.
• Asking your banker, accountant, and other members of your network to recommend members.
• Taking courses in corporate governance.
• Consulting with firms or organizations specializing in human resources.

Should advisory board members be paid?

Compensating members is also a good practice. However, the amounts are often symbolic.

Sometimes companies offer shares or options to ensure they have someone on the committee, but this practice remains very rare.

One risk to watch out for is the presence of members who are primarily concerned with their own interests. When these individuals are chosen mainly on the basis of their personal financial involvement in the company, the line between what is good for them and what is good for the business becomes blurred.

How many people should be on the committee?

The committee should comprise at least three members: the entrepreneur and two external members. This allows for a more balanced discussion with at least two other points of view.

However, since committee members do not make decisions, there is no real maximum number of people.

What are the benefits for committee members?

Your committee members are not typically present for the payment or meal provided during the meeting. If this is the case, your committee may not be the right place for them.

Generally, members participate to see the company grow and to derive satisfaction from seeing their advice bear fruit. Members also expose themselves to the ideas and perspectives of others, in addition to expanding their business network.

It is therefore essential for you to consider members’ comments and suggestions, even if they conflict with your vision for the company. If you all always agree, the committee may not be functioning to its full potential!

3. Keep your committee dynamic

Once the committee is established, it must remain active. Organize regular meetings and prepare adequately for each one.

It is not necessary to change the members of your committee annually, as is the case with a board of directors. Instead, do so if your needs change.

Carefully manage cohesion within the committee. A climate of trust and openness is crucial for getting honest and constructive feedback.

Moving from an advisory board to a board of directors

As a company grows, creating a structured board of directors often becomes a key step.

However, in small organizations, this board is sometimes limited to the chair, which does not promote productive exchanges.

Companies that already have a structured advisory board generally find it easier to transition to a board of directors. However, adjustments are always necessary.

For example, board members may want to obtain insurance coverage. These members assume personal legal liability and may be subject to lawsuits.

As a general rule, creating a board of directors typically dissolves the advisory board. Some companies keep both: a board for formal decisions and a committee for strategic ideas. This could be an attractive option if you want to keep the committee to discuss specific topics.

Checklist for your first advisory board meeting

1. Select a chairperson.
2. Find a quiet, private location where discussions can take place without interruptions.
3. Prepare the agenda with the chair and gather the necessary documents. Estimate the time required for each item.
4. Check for any conflicts of interest among the members.
5. Invite the relevant people and send them the documentation before the meeting.
6. Ask someone you trust to take notes to write the minutes (advisory board) or the minutes (board of directors). Have participants sign a confidentiality agreement.
7. Hold a quarterly meeting to discuss and approve the financial statements.
8. Adopt the minutes at the next meeting.
9. Review the document before the meeting to ensure it contains all the necessary information.

Next step

Download our guide, The Science and Art of Good Corporate Governance, to learn about the basic concepts of governance and the importance of forming a board of directors with the skills and experience necessary to guide the company wisely.