Advising the advisers: a case for advisory boards

Governance by Design founding director Sonya Beyers discusses the role advisory boards can play in the future of good governance in Australia.

 

This year, through a number of opportunities both in Australia and overseas, I have been learning about boardroom dynamics, governance influences that impede success, and drivers of effectiveness.

What is apparent is that the operating environment that most boards work within is becoming faster, more transparent and competitive, yet the model of boards in Australia and how they meet, hasn’t changed.

Leadership from the boardroom now requires that we spend more time, rather than less, considering matters of an ever-expanding nature, all the while complying with further regulation.

The role of directorship has broadened yet the skill-sets on boards hasn’t expanded to compensate for this, in part because of the limited number of directors (which contemporary governance suggests is between 7 and 9) that are optimal around the board table to drive effectiveness.

As a result, we have more responsibility and more to consider, but within a boardroom environment designed for less complex times.

This means that as directors we need to work smarter and one tool available to help boards achieve this is the establishment of an advisory board.

The difference between a governance and advisory board

The advisory board is not a new concept. Government has been using them for some time and in Germany and other countries, there is a mandated two-tiered board system that includes advisory boards.

The use of advisory boards is something we can consider here, both at the boardroom level and for smaller and family-owned businesses who don’t have governance boards.

As we continue to face rapidly evolving laws, operating environments and risk factors, the idea that a small number of directors or business owners can be across every matter consistently and effectively, and also put forward strategic plans to address them, is increasingly difficult to accept.

Already we are seeing companies like Nestle establish different advisory boards to support its purpose, the Bank of Melbourne relies on the concept, and the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell recently described advisory boards as a ‘secret weapon’ for small business.

We know a governance-focused board makes informed, effective decisions.

The use of an advisory board can change and potentially improve, how boards are informed, and therefore enable better decision-making.

The broadening landscape and expectations of the duties and responsibilities owed by directors often keeps us down in the detail.

It’s very hard, with the limited amount of time we find ourselves together as a collective, to allocate time on the board calendar to stay in the forward-thinking space for strategic decision-making and planning.

So, how do advisory boards operate differently?

•       The ideas are owned by the business and the business owner.  This is a problem-solving board;
•       There are no legal duties or responsibilities;
•       Board as a whole meets on average quarterly;
•       The intent of an advisory board is to road test options and share ideas.  At the meeting you navigate through options so that the business owner can make a decision following the meeting;
•       Bringing networks to the table is very important as the advisory board has been established to build the organisation’s success;
•       Composition is smaller with an independent Chair, up to two advisers and the business owner(s);
•       The Chair meets once a month with the business owner however the business owner is responsible for the preparation of the meeting papers;
•       The advisers come to the meeting to share ideas and think tank – there is no decision taken.

The architecture of an advisory board can be structured to meet the needs of an organisation.  Examples include pop up and formal advisory board structures.  Pop ups have a limited tenure – normally 90 days and they essentially work as a project group with specialists to identify ideas.  Formal advisory boards have structure – the board papers are prepared by the business, advisers come prepared and actions to be addressed by the business/business owner are settled at the meeting.

One of the key differences between a governance and advisory board architecture is that the business owner has responsibility for the actions and outcomes.

Who should consider an advisory board?

Corporate boards wishing to test strategic direction, question their relevance, enter new markets, or who have specialised areas of focus within the business that requires a different skill-set, could be well-served by the introduction of an advisory board.

Family owned businesses who are looking to bring governance into their businesses, start-ups looking for seed funding, or organisations with a CEO/Founder who wish to take the business to the next level of growth are also well placed to take advantage of such a model.

While the legal duties underpinning governance are black and white, applying and implementing effective leadership and decision-making from the boardroom in order to maximise performance and success isn’t.

Each organisation is unique: each entity has specific goals, a distinctive membership or shareholder base with their own expectations, and an explicit marketplace in which to operate.

When identifying the governance architecture most relevant to your organisation, consideration should be given to whether an advisory board will help as there is no one size fits all in governance.

Sonya Beyers is a Certified Chair through the Advisory Board Centre.

 

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