In the current highly competitive and challenging economic times that most businesses face, a strong advisory board can be particularly helpful in navigating ever-changing and sometimes complex marketplaces.
“A growing number of our closely held business clients are using outside advisory boards to assist them in evaluating strategic issues affecting their businesses,” says John F. Schlechter Jr., director in the Audit and Accounting Group at Kreischer Miller.
Smart Business spoke with Schlechter about the role of a strong advisory board and the benefit of gaining perspective in a complex business environment.
What is the difference between an advisory board and a board of directors?
The advisory board functions somewhat differently than a more formal board of directors. The exact role of a board of directors is sometimes detailed in corporate bylaws, which will typically vest the board with more formal responsibilities, such as voting rights in certain decision-making and looking out for and protecting the interests of shareholders or other stakeholders.
The advisory board is typically less formal, and its roles and responsibilities can be tailored by management to fit the company’s needs and expectations. As its name indicates, the role is more advisory and support-oriented, as opposed to having voting and decision-making responsibilities.
What are the typical roles of an advisory board?
The primary role of a typical advisory board is to help management think through and develop the strategic planning for the business. Advisory board members should challenge management’s thinking as to the organization’s strategies and direction, and provide ideas and creative out-of-the-box thinking in regard to the company’s challenges and opportunities.
Oftentimes, owners and management can be so intensely focused on and consumed by the day-to-day activities of the business that they miss opportunities or fail to see sometimes obvious solutions to the business’s challenges. An advisory board can often help management ‘see the forest through the trees’ because its members are not emotionally connected to the day-to-day problems and issues surrounding the business.
It’s common for advisory boards to meet quarterly, and for a formal agenda to be developed in advance of each meeting. Agenda items may include a review of financial results and budgets, an analysis of upcoming capital expenditures and financing alternatives, an update on strategic initiatives, and a review of current challenges and opportunities impacting the business.
