Are you ready to get advice on how to run your company? Are you open to being directed on how to run your company? Unless you have a publicly traded company, in which you must have a Board of Directors, you have options.
An Advisory Board is a body that advises the management of an organization. It does not have authority to vote on corporate matters nor does it have legal fiduciary responsibility. It is a way for top management to utilize the brainpower of several respected individuals but it is up to management to heed or ignore the input.
Individuals for the Board of Advisors are typically people known and respected by the Chief Executive of the organization. They tend to be people with broad experience but not necessarily in the same line of business. They should be willing to speak forthrightly to the CEO, be willing to listen, and put forth recommendations. They tend to be unpaid for this service so their time is mostly spent with the CEO discussing problems he/she brings to meetings. No time or action is expected from the Board of Advisors other than what they spend in meetings, which are typically held monthly. The agenda is set by the CEO and includes a review of financial performance and projections and problems where the CEO would like advice.
Alternately, an organization may decide it would benefit from a formal Board of Directors who jointly oversee the activities of the company or organization and are elected or appointed by the owners or stockholders. A board’s activities are typically detailed in the organization’s bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. It is a good idea to have an uneven number of members of the Board so as to avoid a tie vote or stalemate. The ideal number is considered to be seven. That would allow for one to be committee chair for each of the three standing committees; Audit, Human Resources (sometimes called Compensation), and Strategy. They should have expertise in the field of their committee. One member of the Board is the CEO of the organization and the other three should have expertise in the organization’s line of business.
Typical duties of the Audit Committee include:
- ensuring the availability of adequate financial resources;
- approving annual budgets;
- accounting to the stakeholders for the organization’s performance;
Usual duties for the Human Resources Committee are:
- setting the salaries and compensation of company management.
- selecting, appointing, supporting and reviewing the performance of the chief executive
Normal duties for the Strategy Committee are:
- governing the organization by establishing direction, broad policies, and objectives;
The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. Board members are expected to spend at least two days per month discussing potential problems with employees at all levels. This is in addition to the Board meeting on site with additional time in research outside the facility. For these reasons, board members are usually limited to belonging to no more than two boards of for-profit organizations. To have this time available, they are usually retired from their personal careers and are considered to be professional board directors. All are independent of the organization except for the CEO.
So, what is the right kind of board for your organization? Questions to be considered are:
- Are you a public or private organization? Public organizations require a Board of Directors.
- Are you willing to give up some of your power?
- Do you have the ability to pay professional directors? Advisory Board members typically not paid fees other than expense reimbursements.
- Do you have the ability to attract professional directors?
- Do you recognize the value of professional directors?
Establishing a Board is a very important decision to be made by the owners and should not be made lightly. The additional brainpower can be very valuable but there are tradeoffs.