Do You Need an Advisory Board for Your MSME?

What an advisory board is, and is not

An advisory board gives advice. It has no voting power over the business and does not carry the legal duties of directors of a company. The owner remains responsible for decisions. That distinction should be clear in writing to everybody involved.

A statutory board of directors, where your company structure requires one, is a different thing with legal responsibilities. If you are unsure about the difference or about how an advisory body should relate to your directors, consult a company secretary or lawyer.

When it is worth having one

An advisory board usually pays off at moments of change or complexity. For example, an owner planning to enter a new city, professionalise the management team, involve the next generation or prepare for outside investment may need views that the existing team cannot give.

It is less useful if you want approval rather than challenge, if you are unwilling to share real numbers, or if the business is too early for the questions to be strategic. In that case, a mentor or a coach may suit you better for now.

• You face big decisions and have nobody senior to test them with
• The business is growing faster than your own experience
• Family and ownership issues need a neutral voice
• You want discipline in reviewing strategy and performance

Whom to invite

Aim for three to five people with experience that fills your gaps: someone from your industry, someone with finance or operations expertise, perhaps someone who has built and exited a business, or an expert in the area you are entering. Diversity of experience matters more than seniority of title.

Choose people who are willing to disagree with you politely. Avoid relatives, close friends and anyone with a financial interest in your decisions, unless you disclose and manage the conflict. Ask the candidates clearly for the time commitment and discuss how they will be recognised, which could be a modest fee, expenses or simply the satisfaction of contributing. Check the arrangement with your adviser.

How to run it

Meet three or four times a year for two to three hours. Send a short pack a week in advance: a one-page summary of performance, the key numbers, the main issues and the specific questions on which you want advice. Spend the meeting on discussion and not on presentations.

Write a short terms-of-reference note covering purpose, confidentiality, term of appointment, how members may leave and what the board will not do. A confidentiality agreement drafted by a lawyer is sensible, because members will see sensitive information.

Make sure it changes something

After each meeting, record the advice you received, what you decided to do with it, and who will do it. At the next meeting, report back. Members lose interest quickly if their advice vanishes. You do not have to follow all of it, but you should explain why you did not.

Review the arrangement after a year. Ask whether the questions you brought were the right ones, whether members contributed, and whether the board is worth the time. Replace members who do not fit and be prepared to wind it down if it has served its purpose.