Advisory boards: A value creation catalyst for a business when done correctly

A number of factors need to be contemplated if your business is considering an advisory board, but when done right, such a board is a powerful value creation catalyst.

An advisory board brings a number of important benefits including filling gaps in the knowledge and experience of ownership, serving as a safer haven to discuss sensitive matters and challenging the enterprise to think more strategically.

It forces ownership and management to consider the challenges and opportunities ahead. It offers fresh perspectives and challenges the sacred cows and tribal knowledge that often stymies progress.

Key attributes of board member:

Interviews with numerous owners and advisory board members have revealed that certain attributes are most critical for success:

  • High integrity
  • Commitment
  • Competency
  • Track record of value creation
  • Objectivity
  • Willingness to speak the brutal truth
  • Humility

Board composition

The composition should complement the knowledge and skill set of the owners. Progressive boards typically consist of at least one member with a strong financial acumen, one with deep industry knowledge and others with strong domain experience in a particular functional/vertical area.

The composition can and should change over time depending on factors such as:

  • A newer business requires board members with more “start-up” and financing knowledge than a more mature business.
  • When ramping up a rapidly growing business, human capital expertise may be essential.
  • A new generation of owners may want broad managerial and business advice and counseling.
  • Families transitioning to new ownership may seek board members with that specific experience.

Board effectiveness

Certain factors influence the efficacy of a board, such as letting an ego get in the way of success.

  1. Poor adviser selection can result in damaging advice and bad chemistry, thus diminishing the board impact. Selecting friends or relatives without regard to their abilities and the needs of the business will, at the least, lessen the value of the board.
  2. Engaging people who are extremely well-known but not truly invested in driving higher levels of success should be eyed with caution.
  3. Lack of trust will hamper a board — an unwillingness to share key financial information and other intelligence essential to the board’s function. This will result in receiving advice that is based on a superficial understanding of the business.
  4. Commitment is a key success component from both sides. Owners need to be prepared, utilize strong inside or outside facilitators and stay the course. Board members need to be clear on what is expected of them.

The requirements for success can be harnessed and managed. Owners who go down that road will find a new source of energy, ideas and experience open to them. Let the journey begin.

Marc Rosen is founder of The Vector Group, a Cleveland based consulting firm focused on driving value creation strategies for professional service firms and privately held businesses who want to achieve more with their performance, human capital and positioning in the marketplace.