What can a private company do, to harness the kind of intellectual firepower that most of us can’t even access in our wildest dreams?
Recruit an Advisory Board.
Public companies have — or are supposed to have — boards of directors that bring expertise and oversight to the steering and operations of those companies. Private portfolio companies often have similar structures that give each CEO both support and accountability.
But most private companies do nothing of the sort. Yet, they easily could.
Why an Advisory Board
On even a minute’s reflection, the benefits are obvious. If you had an Advisory Board — and you filled it with the best connected, brightest, feistiest, most demanding people you could think of — you and your firm would perform better.
- By being both informed and challenged, you’d make better decisions.
- By having access to such minds, you’d get your problems unstuck faster.
- By having to report results to people you respect, you’d have an extra boost of accountability and achieve more.
An Advisory Board is different from a true Board of Directors — the AB is not a directional board, in the governance sense. However you need treat them as seriously as if they were a governance board — as you’ll see below.
So why not just have 1:1 conversations with those folks, why the board? You as CEO are already doing those 1:1s. But the board creates the cross-conversation among the board members — where the sparks ignite.
Thomas Addington, Ph.D., today a Senior Partner at Brand Villages, was interim CEO for Oxford Analytica doing open-source intelligence for big financial firms. “We convened meetings of experts in multiple divergent topics,” he relates. “At those meetings, I witnessed how the meetings catalyzed cross-functional conversations where they all get smarter and better, and the conversations would go places they cannot go with a series of 1:1 talks.”
Who should have an Advisory Board?
Advisory Boards are often used by firms with very few equity owners, and often by family-owned firms. They ought to be formed by anybody who is more serious about creating future success, than they are in “looking good” or “figuring it out for myself.”
David Allen, the creator of the GTD (Getting Things Done) productivity system and bestselling books, says he started out — even before the first book was written — by recruiting a group of advisers. It’s a story repeated many times among successful businesses.
I serve on a couple of such boards, and I never questioned whether the person asking “deserved” a board — if you ask, then it shows you know the value. Once you decide you need an AB, you deserve one, and you’re going to create one — you’ll get one.
How to Recruit an Advisory Board
How do you recruit this stellar list of sought-after people? “That’s the magic,” says Addington. “You want to end up with a collection of individuals who, when others hear who’s on it, they say ‘how on Earth did you get those people?'”
Recruiting starts by making a list of desired people — a long list.
So the recruiting targets depend on the strategy. Am I growing through M&A? or through organic growth? or do I have complex financial issues ahead of me? Do I need to go Lean? Am I going for exports?
Strategy dictates who I approach. What info do I need? What expertise do I need?
Not everybody is a good candidate — some are too narrow in their industry; some don’t listen. You want some breadth, the ability to listen, to not be ego-driven, to be able to give and take. On a larger board (University, etc) with 30+ people, there are always a subset of people who everyone else listens to — the subset of the best. It’s that subset that you would target for recruitment.
On a board of 30 you can hide – on a board of 5 you cannot. So they have to be able to engage, listen, have a wide range of wisdom, and be able to apply it in a different industry (since you want and need cross industry knowledge from at least some members). They have to be willing to say hard stuff gently. They cannot be competitive with the CEO. Unlike public boards, there can be no feuds or spats with management.
Setting up an AB is more art than science. The members must have good chemistry, they must enjoy getting together, and the CEO has to feel good about them.
Recruiting for an AB requires someone with a significant personal and professional network.
What’s in it for the Board Member?
The board members will get a couple of payoffs for participating. For example, you do have to pay them something.
- If you’re a tiny start-up, offer stock, or options, or gratitude. Offer the chance to make a difference.
- If you’re a small money-making business, offer a modest stipend. Figure out what 0.05% of your annual gross revenue is. (For each $1 million a year in sales, that’s $500.) Make that number your quarterly stipend. Multiply by five board members and four meetings, and you’re spending $10,000 a year on stipends, and maybe another few thousand on travel, lodging and meals.
- If you’re a medium sized business making over $10 million a year in sales, set your quarterly stipend at $3,500 – $5,000 or whatever is par for the course in your industry. Again, you’ll cover room, board, and travel costs.
Regardless of the stipend level, that’s just to show you’re serious. Most of the people you’re recruiting don’t need the money.
The real payoff for Advisory Board members comes in two parts.
First, they get to make a difference. They get to exercise their strategy muscles. They get better at what they’re already good at. It feels terrific.
Second, they get to interact with each other. For a well balanced board, this can be profoundly valuable to the members. They’ll be informing and challenging each other, as well as you. Their interactions will create a whole greater than the parts — like four singers harmonizing, creating the illusion of a fifth singer. Thomas Addington describes this as the reason top people in every industry seek out board service opportunities.
(Third, Advisory Board service carries no legal liability. Contributors who might think twice about the liability that comes with a Board of Directors role, won’t have that concern.)
One time, Addington says “I sent out an advance question, asking members to bring in information on M&A.” After the meeting a board member, a 60+ year old big shot (he chairs a university, owns hotels, and served the governor of his state) said “I learned more about M&A today than I’d learned in my life to date.”
How to Use an Advisory Board
Use your AB as a board that recommends action. It should have all the same access as a true Board of Directors. They cannot take decisions, yet they should take their role seriously.
Be sure your biggest problems and opportunities go in front of the Advisory Board, says Tracy Houston, a Denver area Board Advisory Consultant with Board Resource Services. The biggest complaint she hears from AB members is a “lack of engagement.”
Meetings can be structured any way you like. One template that’s successful is to fly in for supper Tuesday, meet Wednesday from 7 or 8 AM until 1 PM, then fly away. Obviously everyone needs to get the agenda and packet of supporting materials well enough in advance to review and think.
The logistics like those for a Board of Directors — you’ll schedule 4-5 meetings in a rolling calendar, and you’ll make detailed data available.
How you Know it’s Working
You know it’s working well by the results you create — the decisions made, the paths chosen and not chosen.
And you’ll see it when, over time, the CEO and the board members say “this is one of the highlights of my calendar. We want to continue this.”