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Advisory boards: A good thing, or no?

17/6/2019

 
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Several times in recent weeks, I have been asked about advisory boards. Individually, none of the requests are especially remarkable. But when several questions are posed in close succession (such as those listed below), by people in several different countries including Australia, New Zealand, the United States and Ireland, it may be timely (again) to review the phenomenon.
  • What is an advisory board?
  • I'm running a company and it's going gang-busters; but a consultant said I should set up a[n advisory] board. Why, and should I take this recommendation seriously?
  • What does an advisory board do anyway?
  • What is the relationship between an advisory board and a real board? 
  • Could you (me), given your 'governance expertise', chair my advisory board?
The spate of enquiries set me thinking. Advisory boards have, at various times, been both topical and the source of much confusion and debate. But why the heightened level of interest at this time? Has the recently-published HBR article on shadow boards been a catalyst, or is something else going on? It's almost impossible to tell, except to observe that the person posing the question—usually an entrepreneur—wants to know more. Either they've read or heard about advisory boards, or been advised by someone that they 'need' one (their accountant, a firm specialising in setting up advisory boards, some other consultant). The recommendation is typically justified by it being a stepping stone, "before taking on a full board". The implication is that the entrepreneur does not have to give up control. And therein lies a common misunderstanding: that an advisory board provides a bridge to, or is a substitute for, a board of directors. It is not (*).
Before going any further, let's lay down some definitions:
  • A director is a person who acts as a director of a company and fulfils various (specified) duties, as defined in the [company] law. This definition is universal. Collectively, a group of directors is called a board of directors. Although the name (director) is reserved in the statute, the name itself is not as important as the function the person is performing. Regardless of what they are called, if a person is doing things that a director would normally be expected to d), they are deemed to be a director. If the entity is a company then it must have at least one director (some jurisdictions require at least two), which means it has a board already. But that is not to say that the normative practices of corporate governance (the provision of steerage and guidance, monitoring and supervising management, etc.) are apparent, or even necessary (most statutes do not mention the word 'governance').
  • An advisor is someone who is retained (typically from outside the company) to provide advice that the recipient may, at their sole discretion, accept or reject. In a company context, the person or group seeking the advice could be a manager, a company founder/entrepreneur, a director or the board of directors. Examples include a lawyer;  a coach; a tax, IT or AI specialist; or an industry expert.
  • An advisory board is a term of convenience that has entered the lexicon in the past decade or so, usually in the context of smaller size . It is typically used to describe a group of advisors who meet periodically—even regularly—to consider questions and provide advice.
Turning now to the question posed in the title of this muse: Are advisory boards a good thing? The answer depends on the purpose and function of the group of advisors (let's not use the term 'board' just now).
  • ​If the group is formed to discuss a situation and provide specialist advice, that is little different from the retention of a lawyer or subject matter expert. It can be a good thing—depending on the quality of the advice provided, of course!
  • ​If the group meets regularly, and especially if meetings are conducted (or tasks performed) in a manner normally associated with a board of directors, then the group may be exposing itself to additional risks. Indicators include an advisory board charter, the appointment of a board chair, a regular meeting schedule with an agenda and minutes (which are subsequently checked and approved at a later meeting) and the consideration of reports produced by a manager (or management). If such indicators are present, the group is, in the eyes of the law, acting as if it is/was a board of directors (and the duties and responsibilities that entails). Thus the terms 'deemed directors' and 'shadow board'.
It's important to note that the 'deemed director' / 'shadow board' risk is borne by the advisor(s), not the manager, entrepreneur or company. But it is easily mitigated. Here are some suggestions:
  • ​When a manager (entrepreneur, director, board) seeks advice, advisors should request a terms of reference or an engagement letter that clearly defines the type of advice sought, and by whom; the advisory period or scope; and the fee to be paid. After the advice is provided (or the advisory period lapses), the advisor(s) should be released.
  • The term 'advisory board' should not be used, ever. To do so implies regularity and conduct normally characteristic of a board of directors.
  • If external advice is required from several advisors, call the group for what it is, a group of advisors (or some other informal descriptor).
  • Meetings should be called and run by the manager (entrepreneur, director, board).
  • The person or group buying the advice may elect to take notes for his/her/their own record, but these should not be described or circulated as 'minutes'.
While this is not an exhaustive list of mitigations, they are globally applicable.
The bottom lines? (Yes, there are two)
  • Managers (entrepreneurs, directors, boards) can and should continue to seek specialist advice from external parties from time to time.
  • Advisors should avoid being enthralled by the prospect of joining an advisory board—the risks are not worth it. Win the business, provide the advice, move on.
(*) If the entity is a company, a board needs to be in place from day one, regardless of whether advice is sought from third parties or not. The role of the board (i.e., corporate governance) typically includes setting corporate purpose and strategy; policymaking; advising, monitoring and supervising management; holding management to account for performance and compliance with relevant statutes; and providing an account (from both a performance and a compliance perspective) to shareholders and legitimate stakeholders. The formality with which these functions are enacted is, appropriately, contextual. Click here for more information.

Global Peter Drucker Forum: Day 1 observations

1/12/2018

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The 2018 edition of the Global Peter Drucker Forum, the tenth annual gathering of leaders, philosophers and students of management was convened in Vienna, Austria this week, at the Hofburg, the Imperial Palace. The location was a wonderful, historical backdrop for two full days of discussions and debates on topical issues directly relevant to managers and leaders around the world.
Overall, the purpose of the Forum is to share expertise and build capability in line with Peter Drucker's philosophies. This year, the theme was management . the human dimension. It was the second time I have attended the Forum. The decision to do so was relatively straightforward; made soon after I had the opportunity to stand amongst giants in November 2017. As was the case then, the programme followed a reasonably conventional format dominated by panel-based discussions and plenaries. One major difference from last year though was the scale of the event. Some 500 people attended in 2017. The tenth anniversary edition took a step up, to enable 1000 people to join the conversation. This led to some quite different dynamics at a personal level (notably that it was much more difficult to find people or to access the speakers). As a consequence, some intimacy was lost. But this is a minor point, especially when viewed in the context of a very well-run event.
The following three summaries, presented in no particular order, provide a glimpse of the ideas shared and learnings from the first day. (If you would like to know more, please get in touch.)
Business and society:​ Four panelists including Jean-Dominique Senard, CEO of Michelin Group, and Yves Doz, Emeritus Professor of Strategic Management at INSEAD, shared their thoughts on the importance of holding business and society together (the implication being that business and society have, or are at risk of, drifting apart). Key takeaways:
  • Whereas the people challenge during the industrial revolution was to manage staff (think, human resources), the challenge of our time as we proceed through the knowledge revolution is how to inspire staff (think, people).
  • Organisational purpose and underlying values are core to motivation and behaviour. These must be clearly established and inculcated throughout the firm (and even beyond), starting with the board of directors. If either purpose or values are ambiguous, or if people don't buy into them, the natural response is that people will offer their effort (at best), not their hearts and minds. The resultant firm performance can only be mediocrity. 
  • Collaboration, both within the firm and with others (think, ecosystem) is necessary if a firm is to scale quickly.
  • Most established businesses know they need to put people in the middle—but they struggle to implement the change needed to put this into practice.
  • Perhaps counterintuitively, 'legacy' businesses are often much more able to 'win', despite startups having greater mindshare and seeming to be better funded (Hyundai and BMW v. Tesla, for example).
  • Change is a constant now. Therefore, chief executives must operate from the perspective of leadership, not management.
  • Economic liberalism needs to be refined (to end the excesses of self-centred capitalism). If it is not, expect government intervention, through taxation and regulation. 
Human questions, machine answers: Hal Gregersen kicked off this session with some stark predictions:
  • 15% of the jobs currently available will be removed in the future, due to automation
  • 60% of the jobs currently available will be substantially altered by technology
The insight from the first of these numbers is that predictions of cataclysmic job-loss and unemployment are little more than scaremongering. However, the second number demonstrates that the impact of technology on work will continue to be very significant into the future. But we need to get past the numbers for focus on what actually matters: it is people.
People everywhere need to become more adept at using computers, especially for menial and repetitive tasks, and, even more importantly, people need to be taught to be some computers can never be: humans; empathetic, curious, social beings. As humans, our ability to thrive in a world seemingly falling head-long into the embrace of AI is to ensure we ask the 'right questions', many of which will be social, ethical and spiritual.
Other speakers added that capabilities need to prevail over skills. This might sound like semantics, but the difference between the two is both significant and important. Curiosity, situational awareness, contextual understanding and creativity are far more important than operational or tactical skills, for example. Such capabilities need to be nurtured and exercised, lest they become like unused muscles—atrophied.
Re-engaging the humanities: The aim of this fascinating session was to argue the merit of re-connecting humans with the humanities. The starting point for the discussion was an assertion that humanity's adoption of technology has come at a great cost: mankind is rapidly losing touch with what makes him distinct from other species. Simply, the pursuit of technological 'solutions' has seen many lose sight of the meaning of life. 
Humans are social beings, and meaning is revealed through interaction and insight. Unlike molecules that behave in a consistent manner when they are heated (cooled) or put under pressure, humans do not. As a consequence, if organisations are to thrive in the future, conceptions need to change. Rather than using deterministic and mechanistic models to understand and explain organisations and performance, a biological 'ecosystem' may provide a more instructive. In this context, the term 'ecosystem' means a community of organisms that interact contingently and their physical environment. While such communities have defining characteristics, 'success' is dependent on many factors, and it is neither predictable or guaranteed.
A summary of observations and insights from second day is available here.
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Helping entrepreneurs understand the role of the board

10/1/2017

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Entrepreneurs—that group of individuals who put their resources and, often, their reputation on the line, in pursuit of a big dream—are interesting people. Some are brash and larger than life; others are quieter and more considered. Despite variations in style and personality, one common thread that binds entrepreneurs is the importance of leveraging (often limited) resources to best advantage to maximise the chance of seeing their dream realised. One important and oft-overlooked resource is the board of directors. Some of the questions I've heard entrepreneurs ask include:
  • What is a board, what is corporate governance and why even have a board?
  • What role can the board of directors play in the success of entrepreneurial businesses?
  • Don't boards just get in the way most of the time?
  • What viable models exist, to ensure the board adds value?
  • How should the board–manager relationship be managed?
  • How can I leverage the board's knowledge without them 'getting in the way'?
I will be in Brisbane Australia on Tue 7 February 2017 to help entrepreneurs and directors of entrepreneurial businesses explore these questions. The Brisbane branch of Entrepreneurs' Organisation, a global network of more than 10,000 business owners in 42 countries, has invited me to deliver a talk and to host a workshop for members. The title of the two sessions are as follows:
  • The board as a value-creating engine (talk over breakfast)
  • Boards, corporate governance and so on—what does it all mean, and who cares? (morning workshop)
If you would like to know more, follow the link, or get in touch with the team at EO Brisbane Events.
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Peter Crow PhD CMInstD

Company director | Board advisor
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Photos used under Creative Commons from ghfpii, BMiz, Michigan Municipal League (MML), Colby Stopa, MorboKat
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