Forming an Advisory Board – and What to Expect

By Mark Juliano

Many companies form Advisory Boards as part of their overall corporate structure. Advisory boards are DIFFERENT from the Board of Directors, which have control and power in the form of voting, regular contact, full company financial disclosure and generally equity ownership. Advisory boards CAN be extremely effective for company executives if they communicate with them frequently, and respect and heed their advice.

An Advisory Board is generally made up of people who can offer unique advice on a number of areas of expertise for the company such as: marketing, sales, customers, legal, financial, etc. These are people who the founders and executives trust to give good, unbiased advice to the company. As such, they should be experienced members of the industry with significant experience in similar companies, products, industries and disciplines.

Personally, I have served on Advisory Boards to a half dozen companies over the years. My expertise is broad, having been a founder (or CEO/senior executive) of ten organizations, as well as taught entrepreneurship and business planning at the University level (both graduate and undergraduate).

Advisory Board Compensation

The basic rule of thumb is that Advisory Board members should be compensated in some way. These are generally very busy people, whose advice and counsel is sought by many companies and individuals, in addition to their regular vocations. While some advisers will give great advice and spend considerable time with company management — ask yourself which company you’d help if you were an adviser to 6 companies, and 2 were compensating you …

Generally minimal equity (1-3%) is fair (or possibly a small percent of revenues or profits), and/or a small amount of cash (less than $10,000 per year) plus reimbursement of any direct expenses. Remember that hiring a consultant can easily cost $100 – $500 per HOUR, and Advisory board members tend to always have the company’s best interests in mind — not that consultants don’t, but they are more arms-length advisers.

In some cases, Advisory Board members WON’T or CAN’T take compensation — such as if they are a customer, members of the government, etc. Separately — be VERY WARY of potential board members seeking a high level of compensation without any firm commitment of time.

What to Expect from Advisory Board Members

DO expect:

• Regular consultation
• Them to return your phone calls and emails promptly
• Unbiased advice and help
• Focus on their specific area of expertise
• Contacts in the industry, customer base, etc. (i.e. their Rolodex)

DON’T expect:

• Them to do your job for you or run your company
• Them to come to regular meetings and travel extensively. In fact, most times advisory board members meet with company executives separately (or via telephone) versus the board of directors which tends to have a regular meeting schedule.
• Them to be as involved as Board of Directors who generally have a large equity stake, voting rights and a vested interest in the success of the company.

What Makes a Great Advisory Board Member?

Any adviser or consultant should remember ONE most important thing — they are being asked for their ADVICE but NOT decision making. If any adviser (or consultant) finds themselves playing corporate politics, or trying to make decisions against the existing corporate executives — personally I believe these are NOT good advisers. Using the excuse, “well I’m only looking out for the company,” is often untrue — when they are actually trying to improperly assert themselves into the company decision-making structure.

Where to Find Advisory Board Members?

• Experienced, semi-retired, and retired executives
• University professors
• Customer base (yes, they are interested and do have a vested interest in the company)
• Legal community
• Business associates (and friends who have business expertise)

CONCLUSION:

An Advisory Board can be an extremely valuable part of any company’s structure and decision making process. Members can, and should, have solid expertise and experience in the company’s industry and/or a specific business focus (such as sales, marketing, strategy, planning, finance, etc.). As with any advisers and board members, the CEO and senior executives must manage these people, and be sure to give them praise and appreciation. After all, Advisory Board members are people too and in particular are generally giving much more advice than the compensation they are receiving.

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