Staffing your board
Advisory boards exist primarily to add value to the business. This means ideally, they should be staffed to complement the abilities of the entrepreneur who runs it.
Before seeking out potential candidates, you should do a quick SWOT analysis to understand your company's strengths and weaknesses, as well as the opportunities and threats it faces. That makes it easier for companies to identify areas in which complementary skillsets are needed.
Trust is also a key factor, Riendeau adds. "To provide valuable input, advisory board members need to know as much as possible about what is going on in the business.
"The more an entrepreneur trusts his advisory board members, the more open he is likely to be with them. They will be in a far better position to provide constructive advice."
"The ability of a potential board member to diplomatically challenge an entrepreneur's ideas and to help the company navigate through periods of growth and change is also highly prized."
What's in it for the advisors?
While listing the ideal qualities entrepreneurs want in advisory board members is a good start, attracting qualified candidates is much harder. One major problem: Entrepreneurs don't generally have the budget to pay the fees that larger companies do.
As a result, companies are best off trying to recruit candidates who are not in it for the money, but rather have a genuine desire to see the owner do well.
Potential advisory board candidates can often be found among the owner's personal contacts. You probably know the sort of high-calibre business executives, university professors or professionals who would make ideal advisory board members.
And don't forget the growing numbers of retired business executives. Many remain active and interested in business and are itching to make a contribution by attending advisory board meetings and offering their experience, wisdom and advice.
Formal boards of directors may be required
Charles Cazabon, Managing Partner, Co-investments, BDC Capital, said the stakes rise considerably when businesses shift from using advisory boards to statutory boards of directors.
This usually occurs when businesses either transform into public companies or when they take on investors—such as venture capital funds or private equity firms—who want board representation to represent their interests.
"Members of statutory boards will generally have slightly different profiles than advisory board members," Cazabon says. "You will generally favour someone with "C"-level management experience. That means a Chief Executive Officer, Chief Information Officer, Chief Financial Officer or someone with equivalent experience."
Recruitment can be difficult
In addition, not all skills sets are easily recruited, Cazabon warns.
"Because of the influence that complex Sarbanes-Oxley corporate governance legislation guidelines have had on reporting standards, audit committee members are increasingly in demand."
Entrepreneurs faced with more stringent requirements for director qualifications and the potential for liability will need to follow a formal recruitment process and offer higher compensation.