From Olden Days to Modern Ways: Evolution of the Advisory Board

Introduction

Advisory boards have emerged as powerful tools for enhancing decision-making, fostering critical thinking, and driving business growth. In today’s dynamic business landscape, the role of advisory boards is increasingly vital for organisations. They provide valuable insights, expertise, and guidance to navigate complex market conditions, embrace change, and make informed decisions.

In a recent interview for Lunch Money, Nicholas Samios, interviewed the Chair of the Advisory Board Centre, Louise Broekman. This article recaps their discussion. Also available as a podcast or video.

Understanding The Advisory Board Centre

The Advisory Board Centre, which was established six and a half years ago, serves as the global professional body for the advisory board sector. With operations spanning over 25 countries, it aims to raise the standards and best practices for advisory boards worldwide. Similar to the Australian Institute of Company Directors in the governance board sector, The Advisory Board Centre is dedicated to elevating the standard of advisory boards and ensuring their effectiveness in achieving business goals.

The Role of Advisory Boards in Business Growth

Advisory boards play a crucial role in supporting businesses throughout their growth journey. Whether it’s startups, scale-ups, or established corporates, businesses often face critical decision-making points where an external perspective becomes invaluable. Advisory boards provide a platform for business owners, directors, and executives to seek guidance, tap into diverse expertise, and make well-informed decisions.

Different Triggers for Engaging an Advisory Board

Advisory boards are particularly relevant in various scenarios, including:

Emerging Businesses: Startups and small businesses often seek advisory board support to navigate challenges and overcome the “valley of death” phase.
Growing Businesses: As businesses aim to scale and expand, advisory boards help in charting the growth trajectory and strategising for future success.
Transitioning Businesses: When businesses are undergoing significant changes, such as ownership transition or business model shifts, advisory boards aid in evaluating options and determining the best path forward.

Informal vs. Formalised Advisory Boards

While many businesses informally assemble their own advisory boards, there is a distinct advantage to establishing a formalised advisory board structure. Informal advisory boards tend to be ad hoc and lack a structured framework, often fizzling out over time. On the other hand, formalised advisory boards, guided by best practices, offer clarity, structure, and a disciplined approach to decision-making.

Differentiating Advisory Boards from Governance Boards

It is crucial to distinguish between advisory boards and governance boards. Governance boards focus on decision-making and hold legal obligations, while advisory boards excel in problem-solving and providing non-binding guidance. Advisory boards offer a safe space for open discussions, exploration of ideas, and critical thinking without the constraints of binding decisions. By embracing independent thinking and fostering a thinking system, advisory boards augment the decision-making capabilities of businesses.

Key Principles for a Successful Advisory Board

To ensure the effectiveness of advisory boards, adherence to key principles is essential. These principles include:

Clarity of Scope: Clearly define the purpose, focus areas, and boundaries of the advisory board’s discussions.
Structure and Discipline: Establishing a formal structure, meeting frequency, and guidelines for productive discussions.
Measurement of Impact: Regularly evaluate the advisory board’s effectiveness and assess its contribution to the organisation’s goals.
Independence of Advisors: Ensuring that advisory board members maintain independence, both from the organisation and from each other.
Fit for Purpose: Select advisors who possess the necessary expertise and can contribute meaningfully to the specific challenges faced by the organisation.

Overcoming Challenges and Maximising the Benefits

While advisory boards offer immense value, it is crucial to address potential challenges and maximise the benefits they provide. Timing plays a critical role in the success of an advisory board, and it is vital to engage them before crises or cash flow issues arise. Turnaround situations require swift action, and advisory boards should be involved in decision-making from an early stage. Additionally, the emergence of project advisory boards has brought practicality and flexibility to the forefront, enabling businesses to seek targeted advice for specific projects or challenges.

The State of the Advisory Board Market

The Advisory Board Center recently released a comprehensive report on the state of the advisory board market, shedding light on emerging trends and insights. Here are some key highlights:

Project Advisory Boards: 53% of advisory boards established today fall under the category of project advisory boards. These boards focus on specific projects or challenges, offering practical problem-solving expertise.
Governance Systems: The market is shifting from individual governance boards to governance systems. Advisory boards now play a more significant role in supporting directors’ decision-making processes and ensuring compliance with due process standards.
Early Adoption: The average revenue turnover for businesses starting advisory boards is between $1 million and $1.5 million. This indicates that businesses are increasingly recognising the value of advisory boards early on in their growth journey.
Cost Considerations: While the investment in advisory boards can vary, a typical chair’s fee ranges from $2,000 to $3,500 per half-day session. Considering the significant impact on decision-making and business growth, this investment is often viewed as worthwhile and necessary.

The Growing Significance of Advisory Boards in Today’s Business Landscape

Advisory boards have become a vital component in the strategic decision-making process of businesses across various sectors. Unlike traditional boards, advisory boards are not fixed structures and have a defined lifespan. They provide valuable insights and guidance to the organisation for a specific period of time. In the changing business landscape, organisations are focusing on the economic outlook, technological advancements, and adapting to change.

The role of advisory boards is to embrace change, assist in people management, and establish effective governance and structure. Governance within advisory boards includes decision-making processes, compliance, and stakeholder engagement. By involving diverse perspectives and expertise, advisory boards facilitate informed decision-making and help organisations meet compliance requirements.

Looking ahead, the future of advisory boards involves professionalisation and an expanded scope beyond traditional governance roles. Engaging with advisory boards strategically involves assessing needs, selecting board members, and establishing effective governance mechanisms. By recognising the evolving significance of advisory boards and engaging with them thoughtfully, businesses can enhance their competitiveness and drive sustainable growth.

Video Summary

01:00 Introduction to the Advisory Boards Centre
09:20 The impact of advisory boards.
10:01 Different triggers for engaging in Advisory Boards include emerging businesses seeking growth and businesses in transition.
18:14 A shift in the market.
27:41 The Aged care sector regulations in Australia.
33:40 Decision-making and risk management.
37:00 Considerations for establishing an Advisory Board.
42:27 Tips for joining an Advisory Board.