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Advisory Boards: Just Another Form of Tough Love

bank meeting 123rf 9821832_sI had a call yesterday from a client who was getting ready for his second advisory board meeting.  He wanted to talk to me because he know I had been on several clients’ advisory boards in the past and had even had one for my own company for several years.

His concern was that his last board meeting didn’t go very well.  He laid out his dreams and ambitions to the board and they shot him down.  He wanted to know how he could better prepare for the next meeting.  It reminded me of a similar meeting I had with my board that didn’t go as I planned either.  I had my own dreams and ambitions and my board didn’t like them either.

Why Form An Advisory Board

So why do it?  Why put your hopes and dreams out there only to get beat up, criticized and questioned?

You don’t do it for love.  If you want to be loved, buy a dog.  Don’t form an advisory board.

Advisory Boards: Just Another Form of Tough Love

Most entrepreneurs are surrounded by friends and staff and people that don’t have all the facts but are encouraging nonetheless.  You surround yourself with people that give you positive reinforcement.  Your employees are always agreeable (they have a vested interest, after all).

But what you really need to succeed is some honest criticism.  It’s not your successes that kill you, but your mistakes.

The purpose of advisory boards is to give you that honest feedback.  They should question your actions and help you make better decisions.  Their role is to be skeptical of what you present to them.  You want them to find the flaws in your logic.  No one else will do it.

Working with an advisory board can be a very humbling experience.  You basically show them everything – your financials, your dreams and your shortcomings.  If you want to make it a sales job then don’t do it.

The reason to form and advisory board s to be able to lay it all out there, make yourself vulnerable and to open yourself up to criticism before you take action.  Consequently, the actions you take will be more successful.

Don’t have an advisory board yet but interested in setting one up?  Check out our article Form an Advisory Board for details including a video on how to go about it.

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

Advisory Boards

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Advisory Boards

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Audit Committee

An audit committee is a subcommittee of a public company’s Board of Directors. Furthermore, a Board of Directors can have several subcommittees. The committee focuses on corporate governance, specifically, the company’s internal controls and financial accounting systems.

Audit Committee Membership

A company’s committee typically includes a number of outside directors, or non-executive directors. In addition, a committee prefers individuals with financial accounting expertise.

Audit Committee Purpose

This committee has several responsibilities as well as purposes. For example, it is responsible for overseeing the company’s financial reporting. In addition, it is responsible for financial accounting policies and procedures. The duties also include the following:

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See Also:
How to Control Annual Audit Fees
Managed Sales and Use Tax Audit Programs
Double Entry Bookkeeping
Direct Method Allocation
Company Life Cycle

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General Counsel on the Board

See Also:
Ten In-House Secrets for Reducing Your Company’s Legal Costs
Red Herring
Board of Directors
Benefits of an Advisory Board
How to Form an Advisory Board

General Counsel on the Board

It was once far more common for Boards of Directors to include a lawyer who doubled as general counsel. Some boards still engage their attorney board members as legal consultants. The general counsel is especially busy before board meetings. They are reviewing the agenda to determine whether it involves legal issues or requires adoption of formal resolutions. Most important, perhaps, is the general counsel’s role in making sure that the board meets its fiduciary responsibilities.

In this article, we will briefly look at the question of the general counsel’s place at the boardroom table.

How Involved Should the General Counsel be During Board Meetings?

Unless the general counsel is actually a board member, they have to remember that their presence at board meetings is as staff to the board. Sometimes, the general counsel doesn’t remember this. Then they start engaging in debate on policy aspects as opposed to the legal implications of a given move. It is important for anybody in a board meeting to remember his or her own role.

General counsel can attend board meetings, but they should play a relatively passive role. General counsel on the board is there to observe and to flag issues if they arise. Attending the board meetings helps the general counsel to get a sense of the personalities on the board, the board’s tolerance for risk, and whether it likes to act conservatively or aggressively. Part of the general counsel’s job is to evaluate risks for the organization and help shape its response. General counsel is there to make sure that the board avoids legal problems.

Some boards want nothing more from their lawyer than to answer the questions they may pose and a strict review of legal options. The general counsel’s role at board meetings really depends in part on the management philosophy of the organization.


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Where Should a General Counsel0l Draw the Line Between Speaking Up and Staying Quiet at a Board Meeting?

Lawyers and legal issues shouldn’t dominate the decision-making process. The general counsel attends the board meetings to primarily comment on legal issues, and on other issues when requested. Once the general counsel tells the board the advantages and disadvantages, risks and alternatives, and the appropriate legal process to follow regarding a particular issue, then it’s up to the board to pick which way to address the problem in a way that makes the most sense from a business perspective.

In addition, a lawyer who is not a director should not give an opinion on policy unless asked specifically.

What Happens When a Conflict Arises Between General Counsel on the Board and the CEO to Whom the General Counsel Reports?

If there’s something going on that is illegal or clearly not in the best interest of the corporation, and the CEO isn’t reporting it to the board, then general counsel on the board has an obligation to discuss the issue with the board, usually through the chairman of the board. However, it is not the responsibility of legal counsel to go over the CEO’s head and report to the board just because the attorney may disagree with a business judgment the CEO has made. A general counsel must be able to make the distinction between when something is a business decision – such as how much you pay for a service – and when it is a legal issue – such as when you are paying so much it could be considered a kickback.

One other important thing is for the board members to know whether the general counsel is free to raise issues with the board chairman when he or she thinks that the interest of the corporation requires such. The board needs to have the comfort of knowing that the general counsel has ultimate responsibility to the board. This is much like their relationship with the auditors of the company.

Manage Your General Counsel on the Board

The general counsel, if well utilized, should be working with senior management and the board chairman to come up with continuing education for the board on legal issues affecting the company.

TIPS ON HOW TO MANAGE YOUR LAWYER

Your company must disclose to your outside lawyer its communications needs upfront!

For its part, your organization must be prepared to fully brief outside counsel when referring a matter to them. The company must brief the outside lawyer responsible for the matter on what the matter means to the corporation in a business context. Then they must outline the terms of reference for a meaningful communications linkage between the corporation and outside counsel. In other words, fully apprise the outside law firm of the corporation’s information expectations on a particular matter.

If the business manager responsible for the matter wants to be kept abreast of all developments in a matter on a real time basis, then the law firm needs to know this at the point of the initiation of the engagement… Instead of several months later or after complaints by the business manager. In many instances, a company is reluctant to convey this to outside counsel when initiating the engagement. The primary reason for this is because of the cost implications. A high service communications program between outside counsel and its client costs money to implement and administer. But, the costs are invariably incurred, perhaps even at a higher level than might otherwise be the case. This is especially true when the law firm is forced to scramble to respond to ongoing complaints or requests for updates.

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What is a Board of Directors?

See Also:
Ten In-House Secrets for Reducing Your Company’s Legal Costs
Red Herring
Benefits of an Advisory Board
How to Form an Advisory Board
Advisory Board Best Practices

What is a Board of Directors?

The board of directors is an essential part of business, what is a board of directors? The board of directors is a corporation’s governing body. Furthermore, it consists of a group of individuals elected by shareholders. The board of directors are also responsible for setting company policy and overseeing the company’s managers.

A major theme of corporate governance is the separation of ownership and control. The shareholders own the company, but the managers control the operations. The board of directors is expected to try to align the interests of shareholders and managers. Furthermore, they need to always act in the best interest of the company.

All publicly owned companies must have a board of directors. Many private companies also have a board of directors. Boards typically meet several times a year. Furthermore, compensate board members for their services. Consider members of the board insiders, for stock trading purposes. A board often includes the following

  • Inside directors
  • Outside directors
  • A chairperson

Inside Director vs. Outside Director

There are two types of directors on a board: inside directors and outside directors. Inside directors are members of the board and executives at the company, such as the chief executive officer (CEO). They have a dual role, serving as members of the governing body and working as managers at the company.

In comparison, outside directors are not executives at the company. They are independent individuals selected for their experience and expertise in the relevant industry or sector. Furthermore, outside directors serve only one role – they are not company managers – and are thus considered the more objective members of the board. The chairperson can be an inside director or an outside director.

Board of Director Responsibility

The board of directors has many responsibilities that include the following:

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what is a board of directors?

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Benefits of Advisory Boards

Advisory Board Definition

The definition of an advisory board is a group of business executives who meet on a consistent basis to provide leadership, support and constructive feedback to the executive leadership of a company. Furthermore, an advisory board’s purpose is to assist you in leading your company. But unlike a traditional board of directors which represents the interest of a company’s shareholders and to whom the President or CEO reports, an advisory board exists as an advocate, supporter, and resource for the President or CEO.

Benefits of Advisory Boards

The benefits of creating an advisory board include the diversity of opinion and experience it can bring to facilitate an improvement in the leadership of a company. These qualities are not typically present in the traditional board of directors. Advisory board benefits also include the following:

Tips on Advisory Boards

As the leader of an organization, it is important to understand the advisory boards’ roles and responsibilities. In addition, understand what your expectations are of an advisory board. For example, it may be to consider establishing a relationship with a company that would be considered synergistic with your company. It may be to identify a source that can provide an outside perspective on the industry that you do not have in your company. Also it can be to have someone who can provide technical knowledge that you do not have in your company. It is important to be clear on what your expectations are from an advisory board.

Advisory boards offer you the opportunity to engage with a group of experienced professionals regarding the issues facing your company on a routine basis. It also gets their perspective on the performance and outlook for your company and its industry, at a nominal cost.

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benefits of advisory boards

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benefits of advisory boards

See Also:
Ten In-House Secrets for Reducing Your Company’s Legal Costs
General Counsel on the Board
Red Herring
How to Form an Advisory Board
Advisory Board Best Practices

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Advisory Board Best Practices

See Also:
How to Run an Effective Meeting
Future of the Accounting Workforce
How To Train People For Success
Advisory Board Agreement
How to Hire New Employees
How to form an Advisory Board

Advisory Board Best Practices

Best Practices of advisory board management include setting an agenda, communicating with members and soliciting recommendations. Once you set up your advisory board, all of these goals can be relatively easy to achieve.

Advisory Board Agenda

Meetings are typically a routine – a pre-planned event with an advisory board meeting agenda. They are usually a lunch meeting that lasts into the late afternoon or it can be an early dinner meeting that lasts into the early evening. You can hold these meetings in a private room at a restaurant or club. You want it to be somewhere that is quiet and where you and the advisory board members can have an uninterrupted conversation with food and drink provided.

Advisory board meetings typically last between three and four hours, depending on how full the agenda is for a meeting. It is a good idea to publish an advisory board meeting agenda in advance. If members are required to read or prepare anything, then they will have enough time to be ready for the meeting.

The expected outcome of the advisory board meeting is for you to get some recommendations, advice, and perspective. It is not necessarily to make decisions as in a traditional board meeting, with votes taken on motions and minutes of the meeting taken and published.

Advisory Board Communication

You can include advisory board members in the distribution of your monthly financial and operational reports for the company, in order to keep them up to speed on how the company is progressing. This can be beneficial if your advisory board meets on a quarterly basis. You can communicate via email. Furthermore, some advisory boards will have members who engage in discussion between meetings, via email or in person. In addition, advisory board members may meet individually with the company’s president or CEO in between advisory board meetings.

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

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Advisory Board Agreement

See Also:
Advisory Board Best Practices
Benefits of Advisory Boards
Form an Advisory Board
How to Manage your Lawyer
How to write an Action Plan

Advisory Board Agreement

Whereas ____ (Company Name) (Company) desires to have ____ (Board Member) (Member) participate as a member of the (Company Name) Advisory Board (Board) and Member desires to participate in such a capacity, this advisory board agreement establishes the business relationship between Company and Member.

Scope of Advisory Board Agreement

The sole purpose of the Advisory Board Agreement is to provide the CEO of Company with the varying perspectives of the respective Advisory Board Members. The CEO of Company will choose all topics discussed at Board of Advisory meetings. The Board of Advisors will not provide a consensus or vote on a course of action for Company. Member agrees to interact with Company in an advisory capacity only and will have no responsibility or authority in the operations of Company’s business. The use of any information, perspectives or opinions provided by members of the Board will be at the sole discretion of the CEO of Company.

In deciding to take action on topics discussed at Advisory Board Meetings the Company absolves Advisory Board Members of any and all responsibility and liability. Company bears the sole responsibility of deciding what recommendations made by Board of Advisors or Board Member to accept or reject. Company also bears the sole responsibility regarding any implementation and/or success of any recommendation made by Board of Advisory or Board Member.


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Frequency of Advisory Board Meetings

The Advisory Board will meet three (3) or four (4) times a year. Company will notify Members the first (1st) of each year the dates of the meetings for that year.

Member Remuneration

Company agrees to pay Member (??) hundred dollars ($??.00) for each Advisory Board Meeting attended.

Termination

Either party can terminate this Board of Advisors agreement with thirty (30) days prior written notice.

Termination notices will be mailed to the following addresses:

______________ (Company)
______________ (address){BR} ______________ (city & state)
______________ (Member)
______________ (address){BR} ______________ (city & state)

Confidentiality

Company will make Member aware of all conversations and/or materials that are deemed confidential. Any information in the public domain will not be deemed confidential.

This Advisory Board agreement deems the terms and fees of this Advisory Board confidential.

Governing State LAW. This Advisory Board Agreement is executed pursuant to, is intended to be performed under and shall be governed in its interpretation and effect by the laws of the State of (?).

______________ (Company)
______________ Date

______________ (Advisory Board Member)
______________ Date

If you want to learn more financial leadership skills like having an advisory board, then download the free 7 Habits of Highly Effective CFOs.

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