Firstly, what is an advisory board? An advisory board is a body of experienced business men and women that advises the management of an organisation, but unlike the board of directors, it has no authority or fiduciary responsibilities. Establishing an advisory board can be a cost-effective way for your business to obtain strategic advice. In recent years many start-ups have been relying on advisory boards to get free experienced advice!
Before you set up an advisory board, there are a few things you should keep in mind.
Choosing your advisory board members
There are many business experts and industry leaders who are willing to volunteer some of their time to helping new companies. However, before you start recruiting members for an advisory board, you should decide what type of strategic advice your company requires. This is dependent, of course, on the nature of your business. Each business should pick the members of the advisory board based on its particular needs and circumstances.
Choose a diverse group of members who are able to assist you in different fields, and work together to provide your company with valuable strategic advice. It is important that your members are committed to your business. Members should be people that have competence and expertise in an area that is valuable to your business, and they should also be people that you respect and you believe can provide a fresh perspective. Once someone has agreed to become a member of the advisory board, remember to send them a formal invitation letter.
Advisory board members are not directors
It is important to remember that members of your advisory board are not directors. The advisory board is essentially a discussion and learning forum where your business is able to obtain operational and strategic advice from a diverse group of people. This is not a decision-making body. Your business should have its own board of directors who are able to make binding decisions on behalf of the company. Members of an advisory board are there to assist through counselling and advice, and may provide directors and management with ideas which may assist in their day-to-day operations, but they are not a replacement for a board of directors.
Whilst advisory board members may have significant expertise in their field, they are not directors of your company and have no voting power or authority to make decisions. The experience and knowledge of the board can be quite intimidating, and directors of a company may sometimes substitute the decisions of the board of directors with suggestions of the advisory board. This can be problematic as a director’s failure to make his or her own decisions may result in a breach his or her fiduciary and statutory duties to the company. To mitigate this problem, you need to make it clear that advisory board members have no powers or legal duties to the company, and directors are to make their own decisions based on the insights provided by the advisory board.
Sign an agreement with the members
As with setting up a business, setting up an advisory board requires a number of documents. One of the most important is an advisory board handbook. This handbook will set out the purpose of the advisory board, the structure of the advisory board, the responsibilities of each member, and whether there will be a chair, coordinator and secretary, and what their respective responsibilities will be. The handbook should also detail how frequent the advisory board is to meet and whether they are invited to participate in any other events of the business. This handbook is essentially an agreement and should be signed by each member of the advisory board.
If you need help setting up your Advisory Board, LegalVision is here to help! Contact us today to speak with one of our experienced business solicitors.