Does Your Small Business require an Advisory Board or a Board of Directors?
I believe you must have asked yourself that question way many times and you are probably yet to come up with a convincing need to set up either your advisory board or a Board of Directors.
Fortunately, the answer to that question is simple; it lies in a very sincere answer to yet another question – why did you start that business in the first instance? The answer to this particular question would determine if you’d be okay with making decisions alone, or you need to get the services of an advisory board or set up your company’s Board of Directors.
Without mincing words, from my experience, I can readily tell you that companies with properly constituted corporate governance perform much better than companies without.
If you run a small business, it might easily be considered a waste of time to set up a good corporate governance structure, especially when you do not understand the functions of an advisory board to enable you to rationalise the need for one.
Having a board in place, helps companies outperform their contemporaries and competitions in many ways. Majorly, they help you steer your company in the right directions by making accurate decisions at most points.
Though it is not an easy task for entrepreneurs to give up some level of control of their companies to other people, however, finding the right people to make the decisions, give policy directions, create necessary high-level linkages and helping to properly manage all the information and resources you need to productively run your small business can be very rewarding, though a daunting task.
Fortunately, there are a number of ways you can do it properly, and we’ve outlined some of the most effective options below. But before we take a deep dive into how to set up your functional corporate board, it is important that we take a close look at the differences between the advisory board and the board of directors. We would also do a quick rundown on their functions and tasks, then we will talk about how best to set one up.
Differences Between An Advisory Board and a Board of Director
These are two different boards, with different compositions, and functions.
Advisory Board:
Though they both provide advisory services, an advisory board has no legal backing and as depicted by the name, its roles are mainly advisory and the management is under no obligation to abide by the advice given. In order words, there is no fiduciary relationship between the advisory board and the company. They act merely as a platform on which to bounce ideas.
Board of Directors:
The Board of Directors on the other hand are legal representatives of the owners of the company and thus have a fiduciary responsibility to govern the organisation on behalf of the shareholders or members of the company. Her decisions are binding on both the management staff, the shareholders, and members of the board.
Which Board is Better Suited To A Small Business?
Basically, there isn’t any fast answer to this question. It all depends mainly on the level of corporate governance that the owners understand and want to be set up in their businesses. An understanding of the makeup and functions of the respective boards would put a company’s owners in a better place to make decisions on the board to constitute.
What Are The Purposes of Advisory Boards
“The majority of Startups and early-stage companies are led by people who haven’t yet had the opportunity to learn about corporate governance and the relevance of setting up the right corporate structures on which to run. That’s just the reality.”
Though having an Advisory Board or a Board of Directors is optional for small businesses, Constituting a Board is one of the essential things in any properly managed small business. Setting up a board is a crucial step in establishing your company’s independent level of accountability and usually, it creates stability and credibility in a company.
An Advisory Board is a necessity for good corporate governance in any business organization; it is a structured collaborative platform for business concerns to engage with external advisors. It acts as a sounding board for either the owners, directors or shareholders of a company.
What Are The Benefits of Advisory Boards To Small Businesses
Although, most small businesses readily do not see the need for one. Incidentally, the most important benefits are the ability to consult on complex business issues and develop your company’s expertise and visibility in certain areas. Yet, many business owners feel that forming an advisory board will be time-consuming. That said, one thing is sure, the benefits outweigh the investments needed to set one up.
Characteristics of An Advisory Board
14 Qualities To Look For in an Advisory Board Member
- Experience
- Diversity
- Networking skills
- Industry knowledge
- Intelligence
- Must be an action-oriented person
- Highly motivated and excitement about your vision
- Must have a culture fit to your organizational culture
- Must possess very good communication skills
- Must possess very good networking skills
- Alignment with key team members
- Must have the passion for achievement way higher than making money
- Must have coaching ability
- Must be teachable
So What Do These Boards Do?
Advisory Board:
You guessed right – As suggested by their several names, advisory boards exist to provide advice to the business or company.
Depending on the level of experience, years and expertise, a company’s managers may, from time to time, ask their advisory boards these questions:
- Considering our postion, how would you recommend that we grow or scale the business
- how do we prepare for and support key transitions within the company
- How to best go about sourcing for external fundings
- Brand creation, and expansion
- Market expansion advice
- Other strategic advice
Advisory Board members are typically made of experts and professionals in their respective fields who are appointed by a company (not by shareholders) to lend their skills and network to the growth of the company.
Advisory Boards generally help solve challenges that go outside the immediate expertise or social network of internal executives and shareholders.
Board of Director / Governing Boards:
The board’s key purpose “is to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders” – Source: IOD
Basically, the activities of the board revolve around the following areas:
- Establishing vision, mission and values
- Setting strategy and structure
- Delegating to management
- Exercising accountability to shareholders and being responsible to relevant stakeholders
Signs Your Organization Needs a Board
The timing around assembling a corporate board for your organization is dependent mainly on the company’s needs, growth level, capabilities and capacity.
The following include signals that a company might benefit from the services of its corporate board:
You Find Yourself Constantly in Need of Some High-level Linkages:
The very first sign that your company may be in need of a board is when you notice constantly that you have the right resources and skills set to handle certain projects, enter certain markets, get certain clients, yet you are unable to get your way into the necessary corridors to pull the projects through.
There’s a specific projects or developmental objectives but your internal resources are not suitable to execute them.
An organization with specific needs such as entering a new market, making a new acquisition, getting on the stock exchange, or simply raising capital can benefit from the presence of a well equipped and structured board of directors or advisors
For example, if a company with a well-structured board is seeking to raise funding assembles a board to achieve the objective the board members could be tasked with identifying the right sources and guiding management through the fundraising process.
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Quick Summary
Prefer the short version? Here is a concise recap of the key ideas in this article.
Board of Director / Governing Boards: The board's key purpose "is to ensure the company's prosperity by collectively directing the company's affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders" - Source: IOD Basically, the activities of the board revolve around the following areas: Establishing vision, mission and valuesSetting strategy and structureDelegating to managementExercising accountability to shareholders and being responsible to relevant stakeholders Signs Your Organization Needs a Board The timing around assembling a corporate board for your organization is dependent mainly on the company’s needs, growth level, capabilities and capacity. The following include signals that a.
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