Advisory boards: what they are and how they operate

Advisory boards sit alongside governing boards and the management to provide insights that benefit both groups.

type
Article
author
By Steven Moe MInstD, host of the IoD’s Board Matters podcast, partner at Parry Field Lawyers
date
29 Nov 2024
read time
3 min to read
Advisory boards: what they are and how they operate

Louise Broekman is on a mission. She is travelling the world explaining the positive role that advisory boards can play in companies, charities and other organisations.  

She knows all about them as she founded the Advisory Board Centre, which operates globally conducting research and providing training programmes on this topic.

It’s important to get definitions and roles right – “advisory boards” are not the same as a governance board, which consist of the formally appointed directors of a company. 

Instead, advisory boards sit alongside governing boards and the management to provide insights that benefit both groups. 

I’m sitting down with her on a recent visit to Christchurch to talk about her life story for Seeds podcast and her childhood, early years and what led her to start the Centre. It is clear a lot of thought went into the establishment phase more than a decade ago.  She had seen the value of advisory boards in her own life and business experience but wanted to really confirm what she had learned: 

“I decided to pack up my house and then went backpacking around the world to research, test and validate advisory boards,” she says.

In conducting that research and talking with many people it became apparent that there was no professional body for advisory boards and few people had focussed on the role they can play. 

That is how the Centre started, originally in Australia but it has grown and now has hubs in Sydney, Dubai, New York, London and Singapore, and is active in 31 other countries as well as offering online education and services.

So, is this a new phenomenon or have these sorts of boards been around for a long time, and we just did not have the terminology to describe them?

Louise points to history, saying people have always sought advice from others. As an example, when Queen Elizabeth I came to power in the 1550s she set up her “Privy Council” and sought advice, ultimately making decisions after hearing it. In their first meeting in 1558 she said “… you shall be of my Privy Council … you will give me that counsel that you think best”.  

It is not that different today with advisory board members perhaps providing input on specialist topic areas (think AI, supply chain risk, international markets, fundraising etc) or more generally on how to improve the operations of the company.

The Advisory Board Centre has put out a framework for those wanting to know more about what is involved. Rather than just being for business, she is clear that this approach can be used by charities as well. 

This is more formal than just “phone a friend” advice. The chair of an advisory board plays a key role and there should be and a clear mandate and description of what the advisory board is there for.  

She says: “You have a charter and a really clear purpose, so everyone knows what we’re here to talk about – and what we’re not here to talk about, and there is measurement of impact of what it is that you’re going out for and also choosing those people that are fit for purpose with a skills matrix and also a priority matrix. What are the priorities of the organisation or the business … it’s all about Impact and making sure it’s impactful.”

With the responsibilities of governance increasing is there a danger that these individuals could be deemed as “shadow directors” and liable as if they were actually directors that control the company with the same duties applying to them as appointed directors?

This might be possible, but Louise points out that is why it should be clear that these boards are there for advice only and, ultimately, the decision making rests with those who are the appointed directors.  

The Advisory Board Centre has recently released guidance on how to minimise the risk of legal liability which contains other ideas as well.  

Every two years the Advisory Board Centre produces a report on the growth of this area and the latest one on the state of the market was released last year. 

“We addressed the emerging trends of where advisory boards are going in the future, which is very different to where they traditionally come from.”

What might this look like for any of you reading this article? 

First, you might have an informal version of this, anyway, so consider if formalising the arrangements would help give clarity and improve the quality of input you receive. If you do not have any form of this yet, such as in a start-up, then it would be worth checking out the resources to see if having a more formal advisory board might help improve your organisation.  

“Maybe you create an advisory board around a particular topic for three months and then the job is done”.  

We live in a VUCA world with many factors for boards to consider such as climate change, the rise of AI, political turmoil and wars.  It might just be that setting up an advisory board would be worth exploring and help provide additional insights that helps your organisation to grow.  

Resources for those who want to know more:

State of the Market Global Research Report

ABF101: Advisory Board Best Practice Framework

Advisor Concierge Free Support Service

Louise Broekman on Linkedin

Seeds Podcast interview: Louise Broekman on Advisory Boards: what they are and how they operate  

Board Matters podcast