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The advisory board: best practices for composition, operation & organisation

deminor NXT > News > The advisory board: best practices for composition, operation & organisation

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Every business and independent entrepreneur needs an external soundboard and experience-based advice when making important decisions, detecting opportunities and defining strategy. Business leaders may feel lonely at the top and be unsure or inexperienced in crucial aspects of their business. Setting up an advisory board can assist business leaders in this regard. This is independent of the obligation for companies to establish an administrative body.


Characteristics of the advisory board

An advisory board is an informal institution set up on the initiative of the manager(s), the company or the shareholders. Its purpose is to function as an advisory platform for the company and thus provide advice on all strategic decisions or issues at hand (growth, strategy, future, and so on). The advisory board therefore only makes recommendations and does not take final decisions. The managing director remains the final decision-maker.

As an advisory board is informal and therefore not bound by legal regulations or obligations in terms of organisation or operation, as a manager you are also completely free to determine the topics and the agenda of the advisory board yourself, which offers extensive flexibility. This allows the board to be highly focused on current issues and challenges. As a result, you also have a choice in terms of the selection of information made available to the advisory board members.

As a business leader, you are completely free to determine the topics and agenda of the advisory board yourself. This allows the board to be highly focused on current issues and challenges of your company

The appointment of the members of the advisory board, unlike that of the directors, does not have to be published. The composition, and by extension the entire existence of the advisory board, can therefore be kept completely confidential.

Accordingly, the advisory board differs significantly from an active management body (with or without external directors), which is required by law and constitutes the highest decision-making body of a company. Despite the fact that either an advisory board or an active board of directors is often chosen in SMEs, both bodies can also perfectly coexist within the same company.


Best practices in terms of composition of the advisory board

The advisory board has a mixed composition and consists of both internal and external members.

Internal members are mainly company directors, possibly joined by co-shareholders, members of management or staff as a function of specific topics.

Invite concerned staff members or (family) owners when specific topics are being discussed

External members are independent and chosen on the basis of their relevant expertise and experience on the topics on which advice is requested. Make sure there are enough external members on your advisory board. It is recommended to appoint at least two, usually (and preferably) three external members.

In addition, the members must also be sufficiently complementary in terms of experienceskillsknowledge and diversity. Only in this way the advisory board can sufficiently challenge and add value to your company and yourself as a business leader.


Best practices in terms of the functioning of the advisory board

The advisory board should meet on a regular basis to ensure its continuity and the involvement of advisers. It is recommended that the board meet at least four times a year and be established for a period of at least two years.

The managing director draws up a schedule together with the advisory board members and defines the agenda items. Ensure that relevant and reliable information about the items on the agenda is always provided to all members in time. Only in this way can everyone prepare and provide informed advice.

Make sure that relevant and reliable information is always provided in time to all advisory board members. Only in this way can everyone prepare and provide informed advice

At least as important as the preparation, is the follow-up of the advisory board meetings. Always prepare a concise summary of the meetings, focusing on the outcome in the form of concrete advice and action points.


Best practices in terms of the organisation of the advisory board

Since there is no legal framework to fall back on, when setting up the advisory board, it is recommended to lay down concrete conditions and modalities in an agreement with each of the external members. A key issue here is establishing the confidentiality of the advisory mission. All advice, consultation and all information received must be kept strictly confidential by the external members. In addition, provision must also be made for reasonable and appropriate compensation for their time commitment and any expenses incurred as part of their mandate.

It is recommended to evaluate the added value, composition and functioning of the advisory board at least after two years. Replace external members with new members with more relevant expertise or experience in the context of newly introduced issues and challenges.

Also interested in taking the first step towards external advice in your company? Feel free to contact Lien Verhasselt.

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