Advisory Board: Six Knowledge Areas to Seek in Members
An advisory board is one of the most valuable resources any middle-market business owner or CEO can have. In publicly-held companies, the role of the board of directors is more formalized, but that doesn’t lessen the importance of the board of advisors in a privately-held business.
And while members of the board of directors at a publicly-held company have a fiduciary responsibility, can be held accountable and should obtain directors and officers liability insurance (sometimes called “D&O”), advisory board members at privately-held companies are not required to meet those standards.
The advisory board of a privately-held company can be responsible for a wide range of tasks. These include setting annual budgets, establishing operational goals, making sure that sufficient funds are available for operations, and evaluating the job performance of the CEO.
Selecting Your Advisory Board Members
So how do you go about the process of selecting members for your board of advisors? If yours is a privately-held business, you and your shareholders have a lot of latitude in deciding exactly what you want your board of advisors to accomplish. This, in turn, will mainly drive what kinds of individuals you should be looking for as you choose them.
For example, you may want to tap independent advisory board members who can offer technical, financial or strategic advice and direction for your company. This way, you’ll have a team of experts you can turn to on a regular basis who have knowledge of your operations and can offer detailed guidance based on this knowledge. Relying on input from a knowledgeable board of advisors is one of the best ways to supplement your own background and experience with that of other experts in a wide range of disciplines.
Six Valuable Knowledge Areas
Here are six areas of knowledge and responsibility that good advisory board members typically should possess:
1. Your industry, strategy and competitive and market positions
Ideally, advisory board members will usually come from within your industry. By choosing industry insiders to serve on your board, you won’t have to spend the time bringing outsiders up to speed on the details and nuances of your industry. Insiders can also offer valuable input about where your company stands from a competitive position in your market and industry. Based on this, they can help you formulate the best strategies going forward.
2. Your operations, organizational structure and key employees
Board members need to be knowledgeable in these areas to offer the most useful counsel to you and your managers. For example, when they are familiar with the strengths and weaknesses of key employees, they can make suggestions about how these employees can best be utilized to achieve company goals and objectives.
3. Current business trends and issues in your industry
In every industry, there are important trends and issues that affect management strategy and decision-making. By choosing advisory board members who are on top of (and can stay on top of) them, you will be able to better position your company for long-tem success.
4. Key risks, regulations and legal issues in your industry
Similarly, there are rules and regulations in every industry that must be followed to avoid legal snags and running afoul of regulatory authorities. Choosing advisory board members who are intimately familiar with these rules and the risks they may pose to your company can help you avoid legal and regulatory traps you might not even see coming.
5. Financing, capital structure and critical accounting issues
It almost always makes sense to choose at least one or more board members who have experience in these critical areas. If your company ever needs to borrow money or raise capital, or if you encounter accounting related challenges, the expertise of this board member (or members) will prove invaluable.
6. Trends and guidance related to corporate earnings and owner distributions
While this applies mainly to publicly-held companies, private enterprises can also benefit from advisory board member guidance in this area. Earnings management is a critical strategy when it comes to lowering taxes, both at the corporate and individual (i.e., owner) levels.
A board of advisors is one of the most valuable resources any middle-market business owner or CEO can have. Advisory boards of privately-held companies can be responsible for a wide range of tasks including setting annual budgets, establishing operational goals, making sure that sufficient operational funds are available, and evaluating the CEO’s job performance. An outsourced CFO services provider can help you go about the process of identifying and selecting members for your board of advisors.
Arthur F. Rothberg, Managing Director, CFO Edge, LLC