"Advisory group" redirects here.

For the commercial, for-profit, public

enterprise, see Advisory Board Company.

Wikimedia advisory board meeting, Taipei, 2007

An advisory board is a body that provides non-binding strategic advice to

the management of a corporation, organization, or foundation. The informal
nature of an advisory board gives greater flexibility in structure and
management compared to the Board of Directors. Unlike the Board of
Directors, the advisory board does not have authority to vote on corporate
matters or bear legal fiduciary responsibilities. Many new or small
businesses choose to have advisory boards in order to benefit from the
knowledge of others, without the expense or formality of the Board of
Directors.
Contents
[hide]

1 Function
o

1.1 Roles and Responsibilities of Advisory Board Members[3]

2 Reasons of Creating an Advisory Board

3 Creating and Operating Advisory Board

3.1 Mandate

3.2 Focus

3.3 Size

3.4 Meeting Organization and Frequency

3.5 Term of Membership

3.6 Compensation

4 Benefits and Drawbacks

o

4.1 Benefits of Advisory Board

4.2 Drawbacks of Advisory Board

5 Examples of Advisory Boards

o

5.1 Science Advisory Board

5.2 Medical Advisory Board

5.3 Technical Advisory Board

5.4 Editorial Advisory Board

5.5 Citizen Advisory Board

5.6 Energy Advisory Board

6 Startup Advisory Service

7 References

8 External links

Function[edit]
The function of an advisory board is to offer assistance to enterprises with
anything from marketing to managing human resources to influencing the
direction of regulators. Advisory boards are composed of accomplished
experts offering innovative advice and dynamic perspectives. [1] Meeting
quarterly or biannually, boards can provide strategic direction, guide quality
improvement, and assess program effectiveness.[2]
Entrepreneurs, especially from startup companies or small business may
not want to dilute their control of their business by establishing a board of
directors with formal responsibilities and authorities. Thus, an advisory
board may be a more suitable solution to entrepreneurs who want access
to high-quality advice and network in the industry. Advisory board, as an
external group, could also provide non-biased information and advice to
entrepreneurs.

Roles and Responsibilities of Advisory Board Members[3][edit]

developing an understanding of the business, market and industry trends

provide wise counsel on issues raised by owners/directors or

management

provide unbiased insights and ideas from a third point-of-view (not involved
in the operation of the business)

encourage and support the exploration of new business ideas

act as a resource for executives

provide social networking platform for directors and the company

encourage the development of a governance framework that enable

sustainable growth of the company

monitor business performance

impose challenges to directors and management that could improve the

business

Reasons of Creating an Advisory Board[edit]

The main reason to create an advisory board is to seek expertise outside of
the company. Advisory board members should provide the company with
knowledge, understanding and strategic thinking of the industry or
management of the company.
Companies should seek advisory board members whose qualities
complement the existing board of directors and not mask gaps in
knowledge or skill in the main board. An advisory board strengthens the
existing board, but not interfering with authorities of the existing board. The
former editor of The Economist, also an advisory board member, once
says, They (advisory boards) are there to give focus to or sometimes

challenge research and intelligence work being done in the company, thus
avoiding groupthink and giving direction on big picture issues.. [4]

Creating and Operating Advisory Board[edit]

There are two key questions to be asked when creating and operating an
advisory board. The first question is who is trying to achieve what from an
advisory board. The second question is how the business of the board
should be conducted. The following issues need to be addressed.

Mandate[edit]
The type of advisory board members should be determined by the nature of
what is sought and expected from them by the enterprise. Advisory board
members should have distinctive knowledge on different aspects of
business such as marketing, product development, sales techniques that
are of use to the directors.
A lack of definition in what is sought from the advisory board or what sort
of advice is to be sought of would lead to a disorganized board, which
eventually could lead to an advisory board that provide less value per dollar
or hour invested than a well-mandated. Eventually, it could result a waste of
resources and time for the enterprise and the advisory board members.

Focus[edit]
The advisory board must determine what the focus of the committee is,
whether it is a broad focus or a narrow one on a specific product feature.

Individuals in an advisory board should share a common goal or similar

interests.
For example, Algorithmics Incorporated, a company acquired by IBM in
2011, provides risk software solutions. Employees in Algorithmics
specialize in software development, mathematics, financial engineering and
risk analytics. Algorithmics expanded the breath of advice beyond its ninemember board of directors and built an advisory board that focused on the
benefit of customer and potential customer input on product and market
direction. Advisory board members include executives charged with
enterprise risk management responsibility, who would compete against
each other, but share an interest in providing suitable risk management
underpinnings to their business. This common interest help ensure that the
advisory board would be committed and pleased to meet with the CEO of
Algorithmics.

Size[edit]
Size of an advisory board influences the efficiency of delivering ongoing
information and effectiveness of organizing board meetings. A large
advisory board may result in managerial issues. Therefore, if is
recommended an advisory board to begin with the advisory board leader,
and grow from a fairly small size to its ultimate number. Group
dynamics suggests the maximum size for an advisory board is eight
members, which takes into account of the need for enterprise people and
other facilitators at meetings. Some advisory boards mandate may require
more significant representation of a specific and large number of
constituencies.

Meeting Organization and Frequency[edit]

The functioning of an advisory board is affected significantly by how
effectively the groups activities are organized and directed. A fixed meeting
shall be held annually and advisory board members must be well informed
of the purpose and background information of the meeting in order for them
to provide valuable advices.
A corollary should be provided to advisory board members, in which it
should be of an appropriate length, organized, comprehensible and
informative. While it should be concise, it should provide enough details to
provide advisory board members a suitable foundation for them advise on
the business. Confidentiality of the information discussed in the meeting
shall be considered.
A skilled administrator or corporate secretary is required to organize
schedules of advisory board meetings and meeting materials. The chair of
the board should be committed and aware of time management for the
meeting. An agenda could improve the organization and time management
for the meeting.

Term of Membership[edit]
Advisory board members could be appointed to specific terms i.e. one, two
or three years so that it ensures them to actively commit to the company
and prevent them to get too comfortable with their positions. Term of
membership is also important when it comes to expansion of the board;

term of membership ensures that the size of the advisory board remains
efficient and manageable.

Compensation[edit]
Advisory board members serve an enterprise for a range of reasons, from
personal loyalty to direct compensation. Compensations are important as
they give incentives to advisory board members to commit to the enterprise
and give quality advice.
For example, the director of Lorus Therapeutics Inc., Reiter,[5] had
described the compensations of members serving on the Lorus advisory
committee. Some of the compensations include:

the interests of science; Lorus engages in research and development

involving virulent cancers, attracting members who conduct similar research

prestige, camaraderie and personal networking benefits

personal favour; friends and close colleagues of Lorus executives are

asked to join the committee

cash or stock paid back for their advisory board services

Benefits and Drawbacks[edit]

Benefits of Advisory Board[edit]
The benefits of having an advisory board over director of board may
include the following:

Distance Control

Multinational companies have local companies running their business in a

particular foreign jurisdiction for lower costs e.g. tax, price of raw materials,
and organizational benefits. However, giving authority to an outside group
of directors in the local company may increase risks and instability of the
multinational corporation. Since an advisory board can operate in a
different location, with different cultural and business norms, in a different
language, multinational companies may choose to have an advisory board
instead of a localized board of directors in order to avoid loss of control.

Preparation for Board of Directors

Companies may choose to have an advisory board before they have a

board of directors. The development of an effective board of director
requires a group of individuals with good chemistry and has the
combination of appropriate skills to propel the business. Having an advisory
board allows companies assess the commitments and capabilities of each
individuals and observe the chemistry between them before appointing
them to a board of directors.

Higher efficiency

A large board of directors may grow to an unmanageable size where

organizational complexity and communication breakdown may occur,
leading to ineffective and inefficient function of the board. A smaller
advisory board, without the complexity of authority involved in board of
directors, may work more effectively compared to a board of directors that
grows in size as the corporation grows.

Formal advice

The complexity and speed of enterprises often make it difficult to seek

advice on any particular topic. Enterprises may also find building trust in
any person or group to provide on-going and meaningful guidance difficult.
An advisory board can then provide the degree of consistency, longevity
and background knowledge as advisory board members provide reliable
advice on particular issues. Advisory board members receive compensation
for committing to their positions. This gives incentives to advisory board
members to provide quality advice and ensure that a request for assistance
is taken formally.

Less Pressure on Executives

Executives can express partially defined or tentative view to an advisory

board since advisory boards sole purpose is to provide advice. This allow
them to test-drive options before they face the board of directors which
demands definitive and assertive business decisions. The board of
directors assesses the CEO and establishes his or her compensation.
While an advisory board may induce change in the company for the
benefits of the company, a board of directors inducing change in the
company could suggests a lack of confidence in the senior management
team. This imposes great pressure on senior executives and could become
a barrier for senior executives to express their issues and seek advice from
the board. Thus, an advisory board could be a safe harbor for senior
executives to seek advice and test business options.

Focused Input

An enterprise may need advice on a particular aspect of its business (such

as marketing, product direction, customer service or contact network
expansion). While board of directors need to take into account of all
aspects and go through a series of administrative proceedings e.g. formal
approvals, ratification, an advisory board can focus directly on a particular
issue and give advice.

Drawbacks of Advisory Board[edit]

The drawbacks of having an advisory board instead of a board of directors
may include the following:

Less compensation

An advisory board deals with a more narrow range of issues and meet less
often than board of directors. There is less commitment for advisory board
members compared to directors in the board. This is reflected in the lower
compensation advisory board members receive as compared to those in
the board of directors. Nevertheless, the compensation for advisory board
members depends on various factors, including return of investments, time,
organization and cost.

Fiduciary duty/ liability issues

Board of directors is exposed to a variety of legislated liabilities, fiduciary

and other duties. Responsibilities include unpaid wages, unpaid taxes,
environmental damage, etc. By subjecting directors to such liabilities and
fiduciary, directors are forced to make decisions and establish policies in a
way that minimizes risks. Whereas, an advisory board is not subjected to

fiduciary duties or liabilities and therefore could influence the enterprise by

providing risky advises.

Examples of Advisory Boards[edit]

Science Advisory Board[edit]

United States Environmental Protection Agency established SAB in 1978

An example of a scientific advisory board could be the EPA Science

Advisory Board.[6]
EPA Science Advisory Board (SAB) is established in 1978. The Congress
directed the United States Environmental Protection Agency to establish a
science advisory board that provides scientific advice to the EPA
Administrator.
Some of the roles of the SAB include:

review the quality and relevance of the scientific and technical information
being used by the EPA or proposed as the basis for Agency regulations;

review EPA research programs and plans

provide science advice as requested by the EPA administrator

advise the agency on broad scientific matters

Medical Advisory Board[edit]

Howard Hughes Medical Institute at Janelia Farm Research Campus

An example of a medical advisory board could be the Medical Advisory

Board of Howard Hughes Medical Institute,[7] which is composed of
distinguished scientists and leaders of biomedical research institutions.
Some of the roles of MAB include:

Give advice on the long-range strategy of the Institute for achieving its
mission to promote biomedical research and science education;

Proposals for new research programs, investigator competitions, and

grants programs;

The scientific achievements and future potential of current investigators,

including the evaluation of whether an investigator's term of appointment
should be renewed;

Other matters concerning scientific programs and performance upon which

the president requests advice and recommendations.

Technical Advisory Board[edit]

An example of a technical advisory board could be the Technical Advisory
Board of the UK government.[8] TAB is an advisory non-departmental public
body, sponsored by the Home Office.
Some roles of the TAB include:

advising the home secretary on whether the obligations imposed

on communications service providers (CSPs) under the terms of Regulation
of Investigatory Powers Act (RIPA) are reasonable.

Structuring

There are many ways to set up a business. Advantages and disadvantages

and consequences such as liability of proprietors, taxation and capital
gains, have to be analyzed.

[13]

Business plan design and development

Business plan is important not only for planning purposes, but also for
obtaining banking funding or other credit arrangements. Startup advisory
service could provide guidance to startup businesses on designing and
developing a comprehensive business plan.

Financial forecasting

[14]

Financial forecasting is important as it helps financial executives to prepare

a budget, plan a strategy or set business goals. Financial forecasting helps
startups to plan a suitable business model and guide business decisions at
every level of the organization.

[15]

Marketing strategy

Marketing strategy is important because it directly influences sales,

reputation, branding and customer loyalty of a business. Startup advisors
have the experience and network to develop a suitable marketing strategy
for business. [16]

Banking and finance

A business may require loans, credit cards, bank accounts, merchant

facilities, insurance, a superannuation fund, etc. While startup business
may not have the knowledge to set up banking and finance, advisory
services could provide them guidance in such area.

Advisory board recruiting and/or participation

Since startup advisory services a short-term guidance, a business may

want to access long-term guidance and advice for specific business ideas,
product development, and social network in the business. Some startup
advisory services help startups to recruit advisory board members using
their existing network with professionals.

References[edit]

1. Stautberg S, Green N. INNOVATION FROM THE OUTSIDE-IN: HOW

A DESIGN ADVISORY BOARD DRIVES INNOVATION AT P&G
[Internet]. 1st ed. 2014 [cited 22 October 2014]. Available
from: http://www.partnercom.com/files/Design_Advisory_Board_022607.pdf
2. Jump up^ Taylor, E., Marino, D. Rasor-Greenhalgh, S & Hudak, S.
(2010). Navigating practice and academic change in collaborative
partnership with a community advisory board. Journal of Allied
Health, 39(3), 103-110.
3. Jump up^ SME Business Owners/Directors The benefits of an
advisory board mentoring for growth [Internet]. 1st ed. Australian
Institute of Company Directors; 2009 [cited 25 October 2014].
Available
from:http://www.companydirectors.com.au/~/media/Resources/Direct
or%20Resource%20Centre/Directorship%20in%20your
%20organistation/00660_SME_FY_The_Benefits_of_an_Advisory
%20Board_web.ashx
4. Jump up^ Bottomley V, Bingham K, Thorning-Lund S, Slattery R.
The Role of Advisory Boards - Who, what, why and how? [Internet].
1st ed. Odgers Berndtson; 2014 [cited 25 October 2014]. Available
from: http://www.odgersberndtson.co.uk/fileadmin/uploads/unitedkingdom/Documents/K_I/The_Role_of_Advisory_Boards__Who__What__Why_and_How..pdf

5. Jump up^ Reiter B. The role and value of an effective advisory

board. Ivey Business Journal. 2003;:1--10.
6. Jump up^ Yosemite.epa.gov. EPA Science Advisory Board (SAB) |
US EPA [Internet]. 2014 [cited 25 October 2014]. Available
from:http://yosemite.epa.gov/sab/sabpeople.nsf/WebCommittees/BO
ARD
7. Jump up^ HHMI.org. Medical Advisory Board | Howard Hughes
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from:http://www.hhmi.org/about/leadership/medical-

advisory-board
8. Jump up^ Gov.uk. About - Technical Advisory Board - GOV.UK
[Internet].

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9. Jump up^ Cambridgescholars.com. Cambridge Scholars Publishing.
Editorial Advisory Board [Internet]. 2014 [cited 25 October 2014].
Available from:http://www.cambridgescholars.com/t/AdvisoryBoard
10.

Jump up^ Merritt L, Doherty J. Local Government Citizen

Advisory Boards [Internet]. 1st ed. Municipal Research and Services

Center;

2014

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Available

11.

Jump up^ Energy.gov. Secretary of Energy Advisory Board

[Internet].

2014

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from: http://energy.gov/seab/secretary-energy-advisory-board
12.

Jump up^ Ideamensch.com. Why Every Startup Needs An

Advisory Board [Internet]. 2012 [cited 27 October 2014]. Available

from: http://ideamensch.com/why-every-startup-needs-an-advisoryboard/
13.

Jump up^ Dirigogroup.com.au. Startup Business Advisory |

Dirigo Group [Internet]. 2014 [cited 27 October 2014]. Available

from: http://www.dirigogroup.com.au/what-we-do/business-coachingadvisory-brisbane/startup-business-advisory-brisbane/
14.

Jump up^ Venturearchetypes.com. Startup CFO | Business

Model Design & Development | Startup Advisory Board | Marketing

Plans

[Internet].

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15.

Jump up^ Hansen F. The Role of Forecasting in Financial

Planning | Corporate Finance content from Business Finance

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finance/role-forecasting-financial-planning
16.

Jump up^ Lorette K. The Importance of Marketing for the

Success of a Business [Internet]. Small Business - Chron.com. 2014

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