Why companies should consider setting up Advisory Boards

April 11, 2019 Leave a commentNon-Executive DirectorBy Rachel

In this blog post, we promote the role that an advisory board can have in organisations. We also underline the value that advisory boards bring to senior management and – ultimately – stakeholders.

What is an advisory board?

An advisory board provides both senior management and board of directors access to high-quality advice.

Advisory board vs board of directors

Advisory boards have no formal powers and authority. Advisory board members have no fiduciary responsibility and are not company directors. They are not subject to the Companies Act 2006 and are not exposed to legal liabilities.

An advisory board is for advice, not governance. Advisory boards do not approve key decisions of the company and none of their decisions are binding.

An advisory board typically has a defined lifespan, while boards of directors exist in perpetuity.

What is the role and the purpose of advisory boards?

Organisations that consider setting up an advisory board must be clear on its role and purpose. The questions “why are we setting up an advisory board” and “what do we expect from the advisory board members” must be clearly answered ahead of setting up the advisory board. Defining the role and purpose of advisory boards ensures their effectiveness.

What are the benefits of setting up an advisory board?

Advisory boards benefit organisations at different stages of their life cycle. Here, we list the circumstances in which NEDonBoard considers an advisory board to be most impactful:

Entrepreneurs

An advisory board will bring entrepreneurs a wealth of resources, including network contacts, partners, sponsors and access to resources. They provide a sounding board to the entrepreneur(s).

Specific strategic objective

Companies may pursue a new strategic objective while lacking the internal resources to execute the strategy. Entering new markets, engaging in M&A or raising capital provide good illustrations of circumstances in which an advisory board may be drawn to advice management.

Technical mandate

Boards have broad responsibilities and some topics falling within their mandate are technical and complex, requiring specialist expertise. Examples include cyber security, artificial intelligence, climate change or capital model in the financial services industry.

The board of directors and/or senior management may benefit from setting up an advisory board of subject matter experts to advise on those technical and complex topics.

How are advisory board members compensated?

Compensation varies between companies and the stage of growth at which they are at. Typically, companies pay advisory board members for expenses, an honorarium and may offer equity. Small private entities tend to pay no compensation while advisory board members are paid a third to half of what board directors are compensated in large companies.

If you are considering setting up an advisory board for your organisation, please contact [email protected]. NEDonBoard is a membership organisation and has a pool of talented members looking to engage with organisations as advisory board members.

Written by Elise Perraud, NEDonBoard Chief Operations Officer.