With Wisdom and Expertise – The Advisory Board
THE IMPORTANCE OF ADVISORY BOARDS FOR SMES
Many Owners or CEOs of small and medium-sized enterprises (SMEs) understand being submerged in the daily business, constantly solving urgent issues in solitude and personally handling the most important customers or orders. If there is any time left, they review the current business, they worry about available cash and they help their employees.
This means there is no time available for strategic considerations or more importantly, the development of strategic plans. How can an SME succeed in the long term if it is not tracking business and market trends and using this information to shape the company’s future?
Being an SME does not mean renouncing modern management methods. Large enterprises form Strategy Committees from within the Board of Directors, ensuring that both the experts and the time are available to assist Management on the development and implementation of strategic plans. Where your own experts and time are missing as an SME CEO, you can get the help of external managers or professionals by asking them to join an Advisory Board. Advisory Boards have proven themselves over the past years in helping SME CEOs. And yet, very few SMEs have Advisory Boards today.
The Advisory Board members come from external companies, sectors or functions and, as they are not Board Directors of the SME, they do not have voting rights or power. The SME CEO is not obliged to adopt their unbiased recommendations and advice. However, many SMEs misunderstand this and remain reluctant to create Advisory Boards from fear of hidden agendas or loss of authority. And in doing so, they imperil their company through the absence of a strategic planning.
TOPICS FOR STRATEGIC PLANNING
Long term planning of the enterprise’s business future depends on many factors. Within the company, the capital structure, the cash situation, the ability to deliver and the employee competencies impact enterprise sustainability. Outside the company, this is impacted by competition in the enterprise’s sector and markets, the demand for its products and services, evolving market trends, the economy and even the regulatory framework.
The Advisory Board must have a specific focus on a few key topics for long term planning. As examples, it can be asked to assess the development of new products, technologies or markets, to plan investments or source financing, to develop a digital transformation plan, to consider industry consolidation, to develop an outsourcing strategy or even to help develop a succession plan.
The strategies discussed between the Advisory Board and the CEO should shape the direction of the enterprise for the future. The objective is to identify and counter potential threats and to identify and realize potential opportunities.
WHY CREATE AN ADVISORY BOARD?
SME CEOs who successfully introduced an Advisory Board report positive experiences with these external experts. They benefit from a long term and target oriented company direction. Some typical advantages from the introduction of an Advisory Board are
- The advice and recommendations of the external experts should lead to growth and success for the company.
- The experience and unique perspective of successful external managers or professionals will challenge and enhance the CEO’s competence and skills.
- The strategic thinking of the CEO will improve and new ideas will be fostered
- The external experts act as an impartial sounding board, tell you when you are about to make a mistake and help alleviate the CEO’s solitude.
- The presence of an Advisory Board forces the CEO and his managers to work in a professional, systematic and disciplined way.
- The external experts increase the credibility of the company, especially when seeking funding or new clients.
- The external experts connect the CEO with new networks and can create additional visibility for the company.
STAFFING AN ADVISORY BOARD
The SME CEO needs to decide on the mandate of the Advisory Board and needs to define the profile of each member. Members may be selected on the basis of their skills, connections or sector experience. They need to all have a high level of integrity and ethics. Once you know the profiles, searching for the right candidates can take some time. It will take many years of collaborative effort to bring success to the company so the selection of Advisory Board members has to be done very carefully.
Three experienced managers or professionals are usually the minimum number to provide sufficient complementary skills, experience and connections. Eight members are usually the maximum number in order to avoid issues with group dynamics. You should start small and build up as need requires. Compatibility with the CEO’s personality will help ensure a successful working relationship but the Advisory Board members need to be able to challenge the CEO.
The frequency of Advisory Board meetings should be based on the needs of the company, at least once a year, often once a quarter and as frequently as monthly if needed. The time dedication coupled with the value added by the external experts means they need to be compensated. This can be at least partly offset by the soft benefits they derive from their participation such as motivation, networking, professional development and their desire to volunteer.
As cash is often tight, a potential compensation is company stock ranging from 0.25% to 2% depending on the added value expected from each member.
If you are not in a position to offer either cash or stock compensation, you should offer appreciation frequently for their volunteered assistance, offer to provide assistance in return to each member and/or offer to provide compensation once the company success permits it.
ORGANIZING AN ADVISORY BOARD
As the SME CEO, you own the responsibility for the effective and efficient operation of the Advisory Board. The long term success counts on you creating a trusted and structured way of working together. So help the Advisory Board members to develop themselves as a real team, where each one works to their strengths.
Clearly define the mandate and the focus of the Advisory Board to ensure long term effectiveness. Circulate a meaningful agenda prior to each meeting and provide someone to organize schedules, take minutes and manage meeting materials. Nominate yourself or one of the members to be Chairman in order to ensure the meeting respects the agenda and timing and in order to promote a positive working atmosphere. Finally, Advisory Board performance objectives should be set and monitored and continual improvement should be a regular part of the agenda.
Put an Advisory Board in place and you will help ensure the long term success of your company.