Advivo Partner, Dale Edwards, breaks down the benefits of setting up an advisory board, especially for family businesses.
Nowadays, businesses are increasingly seeking to expand their leadership team with an external board or advisory board to grow and protect their business. We are particularly seeing this with family businesses, who may seek advice from an external team due to the outside perspective they can provide.
Generally, an emerging business owner will manage to start, grow and keep their business alive through a mixture of their own abilities, fortunate advice from family and friends, and a very large amount of “luck”. However, while a business owner may be able to fumble their way through in the early stages, issues will eventually arise in areas that they may not have the experience to deal with, or the industry/market intelligence to be able to avoid or mitigate. These could be:
- Financial experience
- Sales/marketing experience
- Legal risks
- Tax risks
- Commercial agreements risk
- Technology innovation
- HR weaknesses
- Workplace Health & Safety risks
- Insurance risks
- Supply chain weakness
These issues create a big survival challenge for the business, especially as it grows and becomes more complex. So, how does the business owner protect their business against these issues? By setting up a board or advisory board.
What are boards and advisory boards?
Both of these are groups of people who are elected or appointed to assist the owners with the strategic direction of the business.
What is the difference between a board and an advisory board?
A board comprises officers known as Directors who are formally appointed or elected and carry legal responsibility for decisions, actions, and inactions on behalf of the company.
Public companies and some other types of structures have a legal requirement to have a formal board with more than one person appointed as a director or officer. A board structure can mean that the founder of the business does not have full control of the business as there are some decisions that require the votes of the board members to proceed.
Contrasting this, the advisory board are purely appointed by the business owners or Directors to advise them, and the advisory board does not hold the ultimate decision-making power. They are there purely to advise and assist the decision maker/s. This means that the owner still has full control and responsibility for the business performance.
Both advisory boards and formal boards comprise individuals in charge of the day-to-day running of business operations as well as those who are only involved at the strategic, board level.
From this point, the word board will be used interchangeably to represent either a formal board or advisory board.
Why set up a board?
The primary reason, if there is not a formal legal requirement, is to manage the “luck” element of the business. No one person is skilled and experienced at everything or has enough time to dedicate to every important area of a business to manage all the risks themselves. The board concept allows the business to benefit from access to other experienced individuals with diverse skills and experience. This can remove a lot of “blind spots” that the founder may have.
The board can also provide different perspectives as they have people involved who can distance themselves from the day-to-day problems of the business and think more “big picture”.
For family-owned businesses, appointing non-family members to some board positions can help to manage any family tensions within the existing leadership structure and assist with the continued success of the business if the next family ownership generation does not have the interest or ability in running the business that the incumbents do.
Another benefit is that your board members, as experienced professionals or business owners themselves, come with extensive networks of contacts in different areas. This makes accessing the right people to help the business with various activities much easier.
Who should be on my board?
This depends on several factors such as the size and ability of the business to fund the costs of a board, as well as the ability and experience of those in charge of leading the operations of the business. It can also depend on what areas the business is focused on over the mid-term. Board members can include experts in the following areas:
- HR (if the business is very staff intensive)
- Industry (same industry as the business)
- Industry (ahead or after the business in the supply chain)
When implemented and run correctly, a board can go a long way toward managing a lot of “bad luck” incidents that can lead to business failure, along with accelerating the growth of the business.
While it may feel overwhelming to set up a board from scratch, it doesn’t have to be. At Advivo, we know each business situation is unique and that there is no ‘one-size-fits-all approach. We have the capabilities to provide a framework of how governance practices apply to your business so we can decide what’s best for you. Contact us today to see how we can help.