Structural similarities may exist between a board of directors and an advisory board. They should both have a chair to facilitate and lead, as well as procedures for the conduct of meetings. In the case of advisory boards, the business owner is not usually the chair because this is often a skill set specifically recruited for.

Setting up an advisory board

Define expectations

Clearly establishing what you are trying to achieve is imperative to a successful advisory board experience. Which area of the business will most benefit from external support? Aim to lock down your own expectations of your advisory board before members are engaged and then work with your advisory board members to collectively confirm the expectations of all parties and how the advisory board is going to operate.

A good advisory board should change over time and members should relinquish their roles if they are either too early for the venture or the venture has outgrown their scope of knowledge.
- Alan Hucks, Creative HQ

Composition

It is really important to select a balance of individuals to join your advisory board and ensure robust but constructive debate. Setting skill criteria allows for an objective assessment of candidates, however, also look for the right chemistry (respect, shared vision, challenge and ability to get over disagreements) – both ways.

Ask yourself the following questions, to help you determine the composition of your advisory board.

  • How many advisory board members are you seeking?
  • Who will be involved from management?
  • What specific skills will help my situation?
    What soft skills will champion cohesion?

Compensation

Compensation for your advisory board members will depend on who is recruited and how involved you need them to be. A number of options exist such as voluntary (no monetary compensation), pay per meeting, a monthly or quarterly retainer, equity in the business or a combination of the above. You need to select the right compensation option to fit your business.

Recruitment

For advisory boards your approach to recruitment doesn’t need to be formal – many advisory board members have been recruited over a cup of coffee or casual drink.

If you want to ensure you cast your net wide enough to ensure you find someone with the right mix of skills, consider advertising with IoD’s Director Vacancies, where for a small fee you can make your position known to members.

Advisory board toolkit

This useful toolkit covers the four phases of an advisory board’s life cycle:

Also see Estefania Gallinanes-Garcia: The value of an advisory board

  1. consider

    An advisory board is a committee of people selected by an organisation (or a board in the case of larger companies) to provide defined advice and information in an informal and flexible manner. 

  2. establish

    Structural similarities may exist between a board of directors and an advisory board. They should both have a chair to facilitate and lead, as well as procedures for the conduct of meetings.

  3. operate

    Advisory board members must not be unwittingly exposed to liability as full directors. As the representative of the organisation you must have absolute discretion to accept or disregard any recommendations made by your advisory board.

  4. exit

    At some point in the life cycle of your advisory board you may encounter the need to exit from or alter the arrangements.

Setting up a board of directors

Put it on paper

Before going out to seek directors for your board, it’s a good idea to put on paper a little bit about how your board is going to operate or in other words a kind of a board charter. It’s not necessary for this to be hugely complicated and you might like to use IoD’s sample board charter as a guide and work through topics like board procedures and number of meetings, tenure, ethics and accountabilities.

In order to get the right person for the role, it is also a good idea to write up a position description. Not only does it give you a better idea of what you are looking for, but it will also help attract the right people.

The description should cover:

  • skills, experience and personal characteristics being sought
  • purpose of the role
  • main duties
  • period of appointment (often three years)
  • time commitment/expectations
  • remuneration.

Go shopping

Start-up and high growth business owners often fall into the trap of only asking people they know to sit on their boards. Instead, it is important to shop around and meet with as a diverse bunch of people as possible so that the best decision can be made.

The IoD can help you recruit new directors with its board appointment services: 

Due diligence – a two way street

Before taking on a new director, make sure that:

  • their referees have been consulted
  • a credit check has been performed
  • a check of the Companies Office records is done to ensure the individual has properly disclosed all directorships and has not been barred
  • a check to ensure there are no other conflicts of interest.

Expect similar diligence by the potential candidate. A good one will want to know as much about the company as possible to ensure they aren’t putting their personal wealth and reputation at risk.

Insuring against liability

The board should be insured. However, the level of cover can vary from company to company depending on what is laid out in the constitution. It is always best practice to speak to one’s own insurance broker just in case.

Formalising an appointment

Make sure that the appointment, once verbally accepted, is formally confirmed by letter.

Induction

The induction into a company is vital if the director is going to make an effective and informed contribution to the board. A new director should:

  • be introduced to the board and all staff
  • meet important business partners
  • visit the business premises
  • gain a full understanding of the goods or services the business specialises in
  • do anything else to acclimatise them into the business as quickly as possible.