Oct 232014

Dr. Earl R. Smith II

A well designed, populated and managed Advisory Board can bring substantial benefits. This is particularly true when it comes to the process of business development. Such a Board can help senior management succeed beyond their wildest dreams. But there are reefs and shoals that need to be avoided.

Often a new client will have an existing Advisory Board. One of my early tasks in such situations is to ‘fix it’. At least that’s how the CEO tends to put it. Most of these Boards have common characteristics and most are indicators that the Board needs to be dismantled and replaced.

The primary characteristic is almost always a lack of productivity. Many have been in existence for years but have yet to directly make significant contributions. A secondary characteristic is unproductive Board meetings, which may have started out monthly but now occur less and less frequently. Members have either lost enthusiasm or patience and become observers rather than players. Meetings tend to occur, if at all, without much prior preparation and with little, if any, structured agenda. The culture seems to be focused on maintaining camaraderie rather than high value creation. As a friend of mine used to say “the wrong is over but the malady lingers on.”

Some Boards are completely virtual. These represent a major effort in duel negative branding by senior management. They are indicative both of a failure in management and of a corporate culture of waste and inattention. Board members tend to fall into the ‘rent-a-name’ category. Not only do these boards typically have to be dismantled but a campaign often needs to be mounted to overcome the accumulated damage to the corporate image … particularly within its client base. Doing it poorly is often worse than not doing it at all.

Many of these Boards include members who have been serving for many years. Little if any tracking of their contributions to the company’s growth has been done. In fact, there is often a total lack of metrics which define effective Board service.

The development of appropriate Advisory Board metrics is elementary school math. So the real question is, “why do many companies with Advisory Boards not have appropriate metrics in place?” Well, more on that in a subsequent column, but I would suggest, for now, that the answer lies in a) how un-seriously management takes the existence, value and potential contributions of the Board and b) how poorly they intend to take advantage of the opportunities it could create. Of course, such a Board will probably, if pressed, prove incapable of delivering solid value anyway.

At a strategic level, the purpose and charge of the Board tends to be very poorly drawn. There is often no coherent document which describes either the function of the Board or the manner in which performance will be measured. Matriculation to Board membership tends to be casual. Given this, how effective would you suppose a Board will be? How can everybody be on the same page when there is no page?

Many times Board members have been chosen because they have skills or connections in the technologies which underlie the company’s principal business. This is a high risk strategy which will be the subject of a subsequent column. But for now, do the words ‘corporate espionage’ have any meaning to you?

From prior columns, you will have guessed that I see only one appropriate primary function for an Advisory Board … driving the company’s top line. An Advisory Board should be populated by individuals who can help management identify, pursue and capture large pieces of business that they would not be able to win without the Board’s assistance. As a result of this focus, Board membership should be predicated on the ability of each member to contribute significantly to the company’s growth. Individuals need to be able to open doors, influence decision-makers and help management organize a highly professional approach to capturing significant new business.

Once this focus is accepted, the evolution of metrics for both effective Board membership and Advisory Board performance becomes easy. Additionally the relationship between the Board and management … particularly the relationship between the Board and the CEO … becomes easy to define.

The compensation scheme for Advisory Board members is also fairly easy to draw. First there should be an annual retainer … a modest sum in recognition of Board service. Second there should be a small honorarium for meeting participation and a provision for covering expenses. Most importantly, there should be an incentivized compensation agreement which is calculated on the volume of business brought in. Finally there should be a provision for achieving equity ownership after certain conditions, particularly conditions that relate to performance, have been met.

There is one characteristic of highly productive Advisory Boards that I’ve noticed over the years. And this one is going to stick in the craw of most CEOs who see themselves as chief of everything. The best Advisory Boards are built by people from outside of the company for the company … by people who specialize in board design, population and management. Home grown Boards tend to be underachievers. I think this is the case for two basic reasons. First, CEOs tend to prefer known people that they are comfortable with. Second, the CEO’s connections tend to be at levels lower than is needed to populate an effective Board.

The first of these can lead to Boards that have collegiate but unproductive meetings. They tend towards feel-good societies which massage management’s combined egos at the expense of shareholder value. Every Board that I have built generates, particularly in its initial meetings, a strong sense of vertigo among senior management. Individual Board members, often towards the end of long and highly successful careers, challenge management to get their collective acts together and the company in shape to deal with the increased business that the Board can produce. I plan to dedicate a future column to relating some of these war stories and results.

The second tendency can be more lethal than the first. Board members need to be very senior individuals with a wide range of contacts, current credibility in critical areas and a willingness to actually work through the entire process of identifying, chasing and capturing new business as an active and aggressive advocate for the company. Individual Board members who do not meet these basic criteria will prove unproductive, and sometimes destructive, of Board operation. ‘Rent-a-Name’ Boards are pure overhead … it is advocacy not introductions that is needed … working partners rather than patrician purveyors of holy water. Members who meet these criteria are extremely hard to find. A critical characteristic of the individual who builds the Board is that they have a very wide range of senior contacts and can manage a widely ranging search for effective Board members.

The design, population and management of an Advisory Board is one of the most subtle and complex journeys that a company will undertake. Done right, the process can lead to unexpectedly high growth rates. Done poorly, it is simply a waste of resources and senior management time.

© Dr. Earl R. Smith II



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