The Upsides of Advisory Boards
Advisory boards have long been used in Silicon Valley, and now are becoming increasingly popular and accessible for start-ups and family businesses in the Geelong region. Business owners are recognising that forming an advisory board may be one of the most important steps they can take to ensure the success of their business.
It is common to see a business owner with a growing business paralysed and overwhelmed by the increasing responsibility of their success. An advisory board can provide invaluable support to a business owner, and help to identify strategic or commercial opportunities for the business. It can also open networks, challenge thinking, provide a great sounding board and assist in the personal development of a business owner.
Business owners frequently have small problems or situations that need addressing quickly and having an advisory board can provide an opportunity to bounce ideas and actions around. They can often be all that is needed to steer a business in the right direction and ensure a small problem does not become a large problem.
An advisory board member can also be engaged for a specific task or project such as to work through intergenerational change, business risks, or expansion to a geographical or operational market.
The structure and size of an advisory board can be tailored to meet the needs and resources of a business. Skill sets typically sought on an advisory board can include an industry expert, finance, legal, or marketing expert.
The responsibilities of an advisory board should not extend to making decisions that would normally be the responsibility of a board of directors or management.
Despite the flexibility in the structure, size and skill sets on an advisory board, care needs to be taken to ensure that advisory board members are not deemed to be shadow or de facto directors. A shadow or de facto director is a person who acts as a director but who has not been formally appointed. A shadow or de facto director can include someone who undertakes tasks typically expected of a director or regularly attends and/or has a vote at board meetings.
If a person is deemed to be a shadow director or de facto director – the duties, responsibilities and personal risks of a director will apply to them. A person is normally deemed to be a shadow director at the time a business is facing legal proceedings and it can have disastrous consequences if the directors of a company are facing personal liability.
To overcome the risk that an advisory board member is deemed to be a shadow or de facto director, the terms of a member’s engagement - including confirming they have no decision-making power - should be set out in clear terms in a formal agreement. Meeting minutes should also be taken to illustrate that the advisory board members are acting in an advisory role only, and the ultimate decision-making power rests with a director or board of directors.
Advisory board members are often provided with highly confidential information about business plans, intellectual property and trade secrets. The formal agreement with an advisory board member should also include obligations in relation to confidentiality and conflict of interest.
With a suitable structure and skills, and appropriate agreements in place, an advisory board can set up a business for success into the future.