We began this series with an important, 2-part observation:
- Closely held enterprises either experiencing – or positioned for – rapid growth, often face significant challenges and risks.
- Management can help address these challenges by utilizing a Board of Advisors.
An advisory board is a group of individuals carefully chosen to provide early-stage or closely held companies with specialized knowledge or strategic advice. The goal is to leverage the board’s analyses and insights so the company’s executives can make intelligent decisions and formulate relevant business strategies. Read the first article in this series.
Building an Effective Advisory Board
To build an effective Board, first determine what you hope to accomplish.
Think about the most significant challenges and issues your organization faces. These can vary widely and may include the following:
- Targeting and entering strategic markets
- Managing the competitive landscape
- Accessing capital
- Adopting prudent financial strategies
- Exploring new technologies
- The allure of going global
- Achieving scale in manufacturing and distribution
- Product innovation
- Legal and regulatory burdens
- Talent acquisition
Then accept the likelihood that some challenges, together with their associated risks, may not be readily apparent. Your objective is to assemble a board of independent advisors that can provide constructive guidance on known issues while also helping to clarify / identify potential issues not yet on the radar.
In selecting people to serve on an advisory board, you should target a diverse group of individuals highly competent in areas or topics that align with the organization’s key challenges and opportunities. Board members should be chosen for what they bring to the table, whether it’s expertise in a particular discipline; a strong business network; deep operational experience; capability in regulatory affairs; knowledge of key technologies and competitive landscapes; or access to strategic markets, partners and investors as examples.
These people should bring more than expertise; they should be independent thinkers and strong communicators. They should be highly knowledgeable about your enterprise and committed to its success. They should be willing and able to devote ample time to conduct relevant research and attend periodic meetings. They should be honest with their observations and encouraged to provide constructive and unfiltered advice. They should observe any confidentiality agreements. And because they are advising a closely held business, they need to maintain discretion on family matters.
When building an advisory board, it’s also incumbent upon executive management to recognize the independent nature of the board and ensure that its members are encouraged to provide their advice and guidance without preconceptions or undue influence.
What to Look for in an Advisory Board Member
When evaluating potential advisory board members, you should consider the following six attributes.
Committed. . . with a Shared Vision
Like the physician focused on a patient’s health, effective advisors should fully embrace the organization’s vision and be genuinely committed to the long-term success of the company and its beneficiaries. That perspective offers the best recipe for constructive advice designed to help the organization achieve its goals.
It’s critically important to ensure that advisory board members are sufficiently independent to interact with executive management openly and to offer their advice honestly. They should feel comfortable asking hard questions and standing by their convictions.
Because executive managers in early stage and closely held enterprises often lack significant, broad-based operating experience, companies should look for advisors with a track record of success in their own environments, a solid understanding of your industry, and deep expertise in targeted disciplines that align with your company’s key challenges.
Been in Your Shoes
No business environment is totally unique, and it helps to have advisors who have been where you want to go. Select people who have successfully navigated some of the same challenges your company faces and who are motivated to share their collective wisdom. Their counsel can be invaluable.
Your advisors should not only be independent, committed, and experienced, they should be articulate, energetic, comfortable interacting with others, and able to convey their thoughts clearly and effectively. They should also be good listeners, able to absorb information from a variety of sources and then make intelligent judgments and suggestions.
You may offer a slick technology, desirable service offering and compelling value proposition. Usually, however, that’s not enough to successfully scale a business. You need doors to open … for customers or licensees; access to global markets, funding sources, potential suppliers, and technology resources. Seasoned advisors can often help locate and open these doors.
In our next article, we’ll suggest ways to build your advisory board, review approaches to compensation, and discuss how to structure and run board meetings.
At Wilchins Cosentino & Novins LLP, we guide and counsel owners of privately held companies from formation to exit. Learn more about our firm’s practice areas offering exceptional service and legal counsel for closely held businesses. Please contact Stephen N. Wilchins directly via email or phone at 781-247-8010 to discuss strategies to achieve your goals.
This article is not legal advice and should not be taken as such or relied upon as legal advice.