By: Steven Enwright, Esq.
Why should you consider establishing an Advisory Board for your company? Ideally, advisers can open a few doors to other influential people in their network. But this is just one benefit. In an era defined by “interconnectedness” (of seemingly disparate products, services, industries and myriad digital relationships) an Advisory Board connects you to insight and experience beyond the scope of your own leadership team. Whether your business is a fledgling start-up or an established cash cow, it can profit from having an inner-circle of strong advisers to provide a balanced perspective.
The operative word here is “balanced.” The most effective advisory boards include thought-leaders from diverse backgrounds—industry leaders; professional bankers, attorneys, and accountants; venture capitalists; and academic experts. Of course, the breadth of perspectives and the nature of the advisers’ expertise should be aligned with your company’s specific vision and goals.
Once an Advisory Board has been established, it is important to develop a plan to manage this valuable resource. The founder or CEO can oversee the advisory board, or you can outsource the function to a professional for a fee. Outsourcing has its advantages; in addition to freeing up your executives’ invaluable time, a paid professional will assume the burden of keeping the advisers on task and potentially removing any who underperform.
In our experience of overseeing Advisory Boards, we find that most companies underestimate the amount of time and energy necessary to maintain it effectively. The board as a whole should have defined goals and objectives, with clear strategies and tactics to get there. Additionally, the individual advisors should be held accountable for personalized goals and objectives.
It is also important to understand that an Advisory Board does not function like a corporate Board of Directors in that its members do not have a fiduciary duty or responsibility to the company. Plus, Advisory Boards have no legal governance authority over the company. Think of Advisory Boards as a group of mentors who share their wisdom and experience in a frank and honest manner, free from the legal and political constraints that bind an official, corporate Board of Directors. In fact, some companies refer to their group of informal advisers and an “Advisory Council” in order to avoid any confusion.
That said, it is still important to have each adviser enter into an “Advisers Agreement” with the company. This typically covers such things as confidentiality and non-disclosure issues, responsibilities and time commitments, plus any compensation and reimbursement arrangements.
Although most advisers won’t be looking for big dollars, you may find them more engaged and motivated if they receive reasonable compensation for each Advisory Board meeting (perhaps with different rates for in-person vs. remote participation) along with reimbursement for travel, lodging and meals. If you are considering providing key advisers with some sort of equity up-side, be certain, for everyone’s sake, to consult with your attorney and accountant to help navigate potential tax, securities and ERISA pitfalls.
To sum up – establishing an Advisory Board is a proven way to bring fresh, objective thinking to your company. Formalizing the agreement, and then managing that relationship according to defined expectations, sets everyone up for a mutually beneficial and productive affiliation. Those are the connections that really count.
If you would like to discuss how an advisory board could work for you, please contact attorney Steven J. Enwright at firstname.lastname@example.org or 248-990-2208.