BoardMatters Quarterly, June 2012
Engaging advisory boards
An advisory board, if used appropriately, could be a great asset for the board and management.
Forward View by Tapestry Networks
Directors recognize the importance of international markets to the future of their companies’ businesses, but many agree that board members often lack the necessary expertise to understand their organization’s international expansion and operations.
As one audit chair in our network recently acknowledged, “We don’t understand country risk trends very well. We talk about opportunities in China and elsewhere, but we don’t talk about the risks. People know that, in general, China’s a risk, but they say, ‘Everyone’s charging in, so we are charging in.’”
Indeed, the experience of many board members is limited to developed economies: by one estimate, only 6.6% of S&P 500 directors are non-US nationals, and of these, 45% are British or Canadian, 24% are continental European and less than 2% are Chinese or Japanese.4
Relying on advisory boards
To bring different perspectives into the boardroom, some boards are experimenting with “advisory boards” to help inform management and the board on significant trends and to help them tap into important relationship networks. An advisory board, if used appropriately, could be a great asset for the board and management.
“Advisory boards typically have great contacts, and if you tailor the composition of the advisory board to what your business needs, they can be real strategic partners,” an audit chair told us.
Directors acknowledge that the formation of some advisory boards has been poorly executed. Perhaps, as one director said, people join advisory boards for the prestige. However, if an advisory board operates correctly, it can provide significant value.
Some questions to consider when forming an advisory board include:
|1||What’s the composition of the advisory board? |
Advisory board members can be drawn from all facets of life, and mixing different types of expertise and experience is valuable. According to one audit chair, his committee will probably set up an advisory board in a country that is strategically important to the company.
As he explains, “We are just thinking it through now – Do we want retired government officials, key executives, university professors, or all of them? It’s going to depend on what kind of insight we are looking for and how engaged the board members will be.”
|2||Who chairs the advisory board? |
The advisory board should be chaired by an individual experienced in running meetings, prioritizing key initiatives, facilitating dialogue and leveraging key resources.
|3||How does the advisory board prepare for meetings? |
Pre-work is critical to the success of an advisory board. Advisory board members should prepare in advance for meetings so that they understand the issues. A clear agenda helps everyone understand the meeting objectives.
|4||Who is being advised? |
Advisory boards could support both the board of directors and management. In some cases, the advisory board could act as a mentor to country managers who are either opening an operation in a country for the first time or who are new to the country. “We expect that the country manager will interface with the advisory board,” said one member of our network.
“At the end of the day, it is going to be a local support group for the [local country] leadership.” In other cases, the advisory board can help the board by providing an objective view of certain issues.
As international markets become increasingly critical for US companies, directors are looking to enhance their boards’ international knowledge. Many directors say they need specialized counsel and advice delivered to management and the board in a more agile manner.
Advisory boards composed of prepared, thoughtful, engaged members can supplement the board’s expertise. Ultimately, it may be worth experimenting with advisory boards in areas of a company that demand more expertise, such as technology change and risk management.
As one audit chair said, “We are thinking of experimenting with an advisory board to help us with an enterprise risk area … if it works out, it will be a huge benefit to us, and it if does not, it won’t be a huge risk to us.”
4 Craig Mellow, It's Time to Recruit More Foreign Nationals as Directors, Corporate Board Member, 5 August 2010.