Once a month, our panel of mentors answer your practical business questions. Send us your questions!
Dear BAM Mentor,
I keep hearing that having an Advisory Board is good idea for a BAM company. How is an advisory board different from other kinds of boards and how should I go about setting one up?
~ Needing Advice
Dear Needing Advice,
When we hear the word “board” most of us think of large corporate Boards of Directors. A Board of Directors in a joint stock company in most jurisdictions is the legal voice of the owners and is responsible to them for giving strategic direction to the company and for selecting and monitoring company management. This sort of board has the authority to hire or fire the general manager and is the highest decision making body short of the general assembly of all the owners. But there are other types of boards as well.
Advisory boards differ from boards of directors primarily in that they do not have the legal authority to enforce their decisions. Advisory Boards are used around the globe for different purposes and can be boards of key customers, boards of technical experts or, as is common for many BAM companies, non-binding management advisory boards.
This non-binding management advisory board is not common in the secular world largely because it is based on trust and good will rather than power. Many in the BAM community (myself included) recommend such boards for small, privately held companies as a way of brining independent input to company management.
A good BAM advisory board will include various stakeholders, possibly including investors, lenders, and various skilled voices with technical, spiritual and financial expertise. The idea is that this board should function similarly to a legal Board of Directors, giving guidance and direction to company management. Because they are not legally established they can’t enforce their decisions in court, but they have all the authority the managers and owners give them. A good advisory board has experienced people who have learned from their own professional lives but who are also able to listen to and learn from the people on the ground running the business.
It can be a real challenge for a small business owner to make regular reports to a board and to accept the board’s direction when there is no legal obligation. But it’s similarly a challenge for a board member to invest time and expense to help a company knowing their direction can be ignored. This is the tension which, if handled properly, makes all the difference. The board members need to trust the manager to listen well, to respond properly and to appreciate their input. The manager needs to trust the board members to do their homework and to provide good input and good ideas while actively praying for and supporting the company.
I should mention too that board members for a BAM company can be fully volunteers or paid large salaries for their work or anything in between. This depends on the financial needs and abilities of those involved. I would suggest that it’s a good idea for at least some of the cost of attending board meetings to be paid by the company to the board members. Even a small compensation changes the dynamic of the relationship in a very positive way.
More Responses on this topic:
The question arises as to the purpose and practicality of an Advisory Board for a small business or a startup. I have had advisory boards for several of the businesses I’ve launched and served on advisory boards for others. Needless to say, I am a big fan.
King Solomon put it like this: “…for by wise guidance you can wage your war, and in abundance of counselors there is victory.” Proverbs 24:6
The basic premise of an Advisory Board is that, rather than try to figure out everything on your own, you can enlist the wisdom, perspective and experience of others to help you “wage your war.” In addition to advice there is also a healthy element of accountability – something many entrepreneurs don’t want, but something all of them need. […Read more]
We must first determine what type of Board you are inquiring about. Usually, an Advisory Board is used to give strategic advice on a narrow topic. A Board of Directors, on the other hand, is who the CEO is accountable to. They give advice on a broader range of issues. This position has some legal responsibilities and Board members on large companies can wield considerable power since they hire and fire the CEO. This is highly unlikely in a BAM company, however.
Let’s talk for a minute about a Board of Directors. You should have such a Board. You, as CEO, need to be accountable to someone outside the company that has direct experience in what you are doing and can likely spot a potential pitfall before you can. Otherwise, it is more likely that you will make a significant mistake – and we all do – and there will be no one to help guide you through a particularly tricky situation. […Read more]
Submit a Question to the mentors panel via the Contact page, select ‘Ask a BAM Mentor – submit question’ as the subject.