Business leaders who create advisory boards are following mankind’s long tradition of seeking advice and counsel. In ancient times, tribal leaders regularly convened a gathering of elders to benefit from their wisdom and experience.
In today’s fast-changing business environment, corporate leaders and CEOs are certainly in need of helpful guidance. Too often, they’re isolated in their decision-making process and suffer from a lack of seasoned advice. One solution is to create a board of knowledgeable, well-connected peers to help their business grow and prosper.
Advisory board or board of directors?
The decision whether to create an advisory board or a board of directors depends on the company’s individual situation.
A formal board of directors has legally defined responsibilities, the foremost of which is to represent a corporation’s shareholders.
A board of advisors can have a more flexible mandate, offering assistance and management advice to the owner/CEO without any binding legal authority.
Why have an advisory board?
What prompts an entrepreneur to make the leap to having a board of advisors? The reasons are many and varied, including:
- window dressing (public relations)
- shareholders or stakeholders wanting to be involved
- networking (access to targeted markets)
- strategic planning
- getting independent evaluations and specialised expertise
- arbitration, especially in business or partner disputes
- management succession.
At the same time, owners of private companies often find reasons not to put together a board. These include the following:
- They fear relinquishing control of the company.
- The liability risk is too great.
- Legal counsel advises against it.
- They don’t know whom to put on the board.
- They aren’t organised enough to run a board.
- They don’t like making presentations.
- They believe outsiders would never understand their business.
- Outside directors would be a bureaucratic encumbrance.
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