How to use an Advisory Board to Reduce the Costs of Corporate Governance

Peer Group Advisory Boards

An advisory board is a group of people that advises the management of a company.  It does not have authority to vote on corporate matters, nor a have legal fiduciary responsibility. This dramatically reduces the cost of corporate governance. Many private businesses look to advisory boards in order to benefit from the knowledge of others, without the expense, formality or corporate governance issues of a Board of Directors. The costs of membership of an advisory board are similar if not cheaper than employing one non-executive director. This means that you get 12 or more advisors for the price of one!

So what is an advisory board?

An advisory board is basically a group of people who you meet with on a regular basis to help you run your business. It can be a group you have organised yourself, a self-help group or a group of managing directors organised by a third party.

How is an advisory board more effective?

Corporate Governance: A non-executive director has a fiduciary responsibility which means that they must spend time on corporate governance as well as acting as an advisor to the board.

In addition, a non-executive director is responsible to the shareholders rather than to the managing director who may have hired them. This means that they can become a barrier or issue themselves rather than an asset due to their rights and responsibilities.

Reduced board of directors: An advisory board is made up of managing directors of non-competing companies which means that you can reduce the size of your own board of directors as within the advisory board there will be a wide range of skills and experience you can bring to bear on your own business. That means you can employ lower cost but quality senior managers to run the business.

Different Perspectives: An advisory board brings with it a wide range of experiences and perspectives. A sufficiently varied board can bring different perspectives to your problem.

Cost effective: Typically it costs the same to join a managed advisory board as it does to employ one non-executive director. A typical advisory board can have between 12-15 members which means that in terms of value you will have 15 heads working on your challenges and opportunities rather than the one of a non-executive director.

More productive: With a non-executive director you will have one person thinking about your problem. With an advisory board you will up to 15 other people working on it. This means you will have a wider choice of ideas to work on and develop.

Structured learning: Advisory boards organised by others often have workshops for structured learning as it is often cost-effective to bring in world class speakers to help you develop your skills and understanding of the latest business tools and thinking.

Structured problem solving: Advisory boards run by others have structured problem solving sessions so that if you have a challenging problem where there is no clear answer or even process for resolving it then the advisory board’s expert facilitator or chair can provide a structured environment to help you unpack the problem and think through the actions needed to work towards its resolution.

Share difficult issues: An advisory board is working on your behalf and so if you have an issue with a fellow director or shareholder then the advisory board is likely to be the only place where you can share the issue in confidence and receive a sympathetic and understanding ear.

So when you are looking to grow your company and you considering recruiting either an executive or non-executive director, first consider whether an advisory board would a more productive and cost effective option.

If you would like help in finding an Advisory Board in your area, go to: Advisory Boards and Group Facilitation