This is the 3rd article in our 5 part series about advisory boards. The 1st explains what an advisory board is, the 2nd explains why you may have an advisory board, the 4th explains the difference from a Board of Directors, and the 5th explains the legal documents required.
Have you come to the conclusion that your business would benefit from the wisdom, knowledge and connections of an advisory board? Congratulations! The next step is to select an advisory board.
First, consider why you need to select an advisory board. What are the key issues that you need to address in the near or mid-term future?
Next, consider what specific advice you need. Do you need advice in an area, like preparing to raise capital from investors? Do you need advice on how to forge relationships with larger businesses?
Third, consider who you know that can provide that input. How can each member of the board supplement the existing skills of the owners, founders and managers? The advisory board Terms of Reference set out who is each member of the board.
Advice: Consider what skills gaps you have, and what skills your business needs to grow as you have planned.
Independence: Do you want people on the advisory board who know you well and already have an interest in the business, or do you want independent people?
Values: It is wise to include people on the advisory board with different skills from the owners and co- founders but similar values. This will help to build understanding, respect and trust on the advisory board.
Approaching Potential Members
You can approach anyone to be an advisory board member. You do not need to know them well. This is not an employment relationship, nor a director role.
It is important that advisory board members do not inadvertently assume the role of director. Directors have specific duties, and therefore director’s liability under the Corporations Act and general law. An advisory board role does not have these duties or risks.
You will need to explain to your potential members what is involved. It is wise to have prepared 2 key legal documents:
(i) Terms of Reference: The Terms of Reference are an introduction to and an overview about the advisory board; and
(ii) Advisory Board Agreement: The Advisory Board Agreement is the formal legal agreement between the company and each member of the advisory board. It includes how often the advisors will meet, the roles and responsibilities and how long the appointment is. A well drafted Advisory Board Agreement will have clear statements that the advice is not binding and that the company is not required to act in accordance with the advice of the advisory board.
An advisory board is a powerful resource to advise and guide your business. When you select an advisory board, you need to consider the needs of your business at the time and in the near to mid future. It is of great advantage to select people who have practical skills to benefit your business, courage to give independent advice, and who care that your business succeeds.
Click here for Part 2 on advisory boards.