It was best said to me recently when I asked a entrepreneur how many times had his advisory board met in one room and how much time he received from his lead “Rock Star Advisor.” The answer was; none and 10 mins by phone.
As an investor this does not leave me with the impression that a strong governance process is being created in this company by this CEO. Creating a advisory board is an important step in the evolution of a company and its founders where once they accept outside investment there is a fiduciary duty to govern the company in a way that demonstrates that the founders now have a responsibility to their investors. A well-structured advisory board becomes a template for a strong and functioning Board of Directors (BOD).
It is through these structures that all investors have the opportunity to validate and approve the strategic direction of the company. It is at the BOD level that the CEO’s feet are held to the fire for strategic direction and (s)he is held answerable for the performance of the agreed strategy. Like it or not, we all have a boss unless you are able to self finance your business from idea to mega growth in the manner in which Jimmy Patterson grew the Patterson Group to $5.5 billion.
When I talk with CEOs after they have sold their company they report that it is the governance aspects of their company that they were least proud of, or to put it another way, if they had their time back they would have made substantial changes. Notwithstanding it is the area that founding CEOss pay the least attention. I have had founding CEOs report that their advisors spent infinite amounts of time on the minutia of their budget to the point that their activity was focused on counting pencils instead of setting the strategic focus of the company.
Don’t get me wrong, creating a well functioning advisory board is a lot of work for a founding team and that is why I suggest they should outsource this activity to professionals. This allows for an objective process that has the best opportunity to ensure people with the skills most needed by the company are recruited. Through my study of corporate governance and my extensive experience working with growth businesses I have developed the following model that assists ensure management have a well structured advisory board or a functioning Board of Directors that contribute extensively to the strategic direction of their company.
How to form an advisory board
I have given many presentations to entrepreneurs and this is a topic I am passionate about. Just ask witnesses to shareholder meetings or AGM’s where I have been present. The model I advocate to form an advisory board commences with gathering the senior management team in a brain storming session to create an inventory of the skills needed by the company. Then an assessment of the current skills held by management is amassed and the difference between the two is the skills gap within the company.
Through discussion we analyze which skills are best performed within a full time role and which skills and attributes can be available through advisors on a advisory board or Directors on Board of Directors. Position descriptions are then formulated for these roles and a recruitment process is undertaken. I like a structure where an advisory board meets in the same room with a focused agenda with the company’s senior management team at least four times a year.
Then as required the advisory board members are available to the founders as required by phone. I am often asked should you pay advisory board members and I always quote John Huston of Ohio Tech Angels “If you want monkeys pay peanuts.” Notwithstanding, there are well structured compensation formulas for advisory boards that ensure the founders don’t break the bank and ensure there is incentive to be committed to the company for a reasonable period of time.
In addition I advocate a non-executive Chairperson for the advisory board first and then to follow the same pattern for a Board of Directors. This leaves the CEO and founding team to run the company and the Board Chair can manage the governance of the company. I have seen more companies fail as a result of insufficient governance than I have seen companies fail for incompetent management or a bad idea.
By way of disclosure I am Chairperson of The Board of Directors of Maple Leaf Angels, a Certified Corporate Director of The Institute of Corporate Directors and have served as a adviser to numerous small and medium Enterprises. Jaguar Capital provides Advisory Services in both Governance and Financial Management to growth companies.