In this blog post, we promote the role that advisory boards have in organisations and the value that they bring to senior management and ultimately stakeholders.
What is an advisory board?
Advisory boards provide both senior management and board of directors access to high-quality advice.
What are the key differences between an advisory board and a board?
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.
Advisory boards are for advice, not governance. Advisory boards do not approve key decisions of the company and none of their decisions are binding.
Advisory boards typically have 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 an advisory board” and “what do we expect from the advisory board members” must be clearly answered ahead of setting up the advisory boards. Defining the role and purpose of the advisory board will ensure its effectiveness.
What are the benefits of setting up an advisory board?
Advisory boards benefit organisations at different stages of their life cycle and we list here the circumstances in which NEDonBoard considers advisory board most impactful:
Advisory boards will bring entrepreneurs a wealth of resources, including network contacts, partners, sponsors and access to resources.
They will 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.
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.
NEDonBoard highlighted the benefits of advisory boards in its Risk Committee, Financial Service Board Best Practices® publication. The guide is available on request to NEDonBoard members.
How are advisory board members compensated?
Compensation varies between companies and the stage of growth at which they are at. Typically, companies pay 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 have experience as an advisory board member and would like to share some of the advisory board best practices that you have experienced, please e-mail Elise Perraud at [email protected].
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.
If you are considering becoming an advisory board member, join NEDonBoard as a member.
On behalf of NEDonBoard, Elise Perraud
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