You’ve just been asked to join an advisory board of an exciting company. They are even going to give you an equity grant. Sounds cool. Should you accept?
Serving on an advisory board can be a great experience. However, the role doesn’t come without risks.
This article will explain why companies form advisory boards, the benefits and the drawbacks of joining one, and five things to consider before accepting an advisory board position.
Why Advisory Boards?
Advisory boards play a significant role in the American business world. There are 880,000 advisory boards globally—54% of them are based in the U.S., according to the Advisory Board Centre’s most recent State of the Market report.
Corporations lean on advisory boards for a variety of reasons, including access to specialized knowledge and boosting the company’s reputation.
Unlike a board of directors, an advisory is not bound by the legal or fiduciary duties associated with corporate governance.
According to the Advisory Board Centre’s research, organizations use advisory boards in different ways, including:
● For projects and initiatives: Fifty-three percent of newly created boards fall into this category.
●In startups and emerging businesses: Twenty-nine percent of advisory boards exist in this category.
● In multinational corporations: These boards focus on things like long-term strategic planning, risk management and compliance with international regulations.
Companies will look for advisory board members who are experts in their fields, have strong reputations, have solid networks, and are committed to dedicating the time and energy needed.
So if you’ve been invited to join an advisory board, congratulations—it’s a recognition of your stature. Before you accept, however, it’s worth looking at the role from all angles so you can confidently step into your position as a corporate advisor.
Benefits Of Serving On An Advisory Board
Busy professionals join advisory boards for a variety of reasons:
Professional development: Joining an advisory board offers an opportunity to expand your knowledge and abilities. Gaining exposure to new sectors, company stages, innovative practices or emerging technologies are just some examples.
Career diversification: Many professionals leverage advisory boards to provide themselves with a variety of new business experiences. This can create new opportunities down the line or help prepare for a career transition.
Networking: Advisory boards are excellent venues for creating professional connections. Having a seat on a coveted advisory board can boost your personal brand and visibility, all of which can lead to more collaborations or partnerships in the future.
Personal fulfillment: Many advisory board members find their positions to be rewarding, whether by helping companies make pivotal decisions or mentoring future company leaders.
Risks And Challenges Of Joining An Advisory Board
Knowing the benefits, it’s equally important to weigh the potential risks and challenges of joining an advisory board, including:
Time commitment: For some, one of the challenges of joining an advisory board is balancing the role with existing responsibilities. Things to consider are meeting frequency, meeting locations (virtual or travel?) and ongoing communication requirements.
Reputational risks: If a company underperforms or gets entangled in controversy, it could feel like your professional reputation is on the line as a part of that company’s advisory board. One notable example of this was the World Patent Marketing case, in which advisory board members were outed for associating with the fraudulent company.
Having said that, most people know that the advisory board has limited decision-making authority, so the extent to which this might affect future opportunities may not be an issue.
Limited decision-making power: Speaking of limited decision-making, advisory boards typically have influence but not authority. Recommendations may not always be implemented, which can be frustrating if you feel strongly about a course of action.
Conflicts of interest: If the advisory board company operates in your industry or competes with your employer or other clients, conflicts of interest may arise.
Legal and financial liabilities: In the United States, pretty much anyone can sue anyone at any time for anything—the plaintiff may lose, but your defense will still be costly. The good news is that advisory board members are much less likely to be sued than board members. Still, the chance is not zero.
5 Key Considerations Before Accepting An Advisory Role
Carefully evaluating the advisory role through the following considerations will help you make a more confident decision:
1. Alignment with Expertise and Goals
Does the company operate in a sector that excites or motivates you? Will the role challenge you and enable you to expand your skills or gain new insights? If the role aligns with your long-term career goals, the advisory board position may be a great opportunity.
2. Company Stage
What stage is the company in? This can impact your experience as an advisor. For example, startups can offer the opportunity to shape company strategy at a foundational level, but they can lack the structure and resources of more mature organizations.
3. Due Diligence
What do you know about the company and its leadership? Spend some time researching them before committing to an advisory role. Ask your network, and look into leadership’s professional backgrounds, reputation and track records of success.
Also review the company’s financials (if available) so that you know if you are walking into a stable situation … or not.
4. Compensation vs. Value
You’re typically not going to get rich sitting on an advisory board; however, you might be compensated for your time. The Advisory Board Centre says companies invest between $40,000 and $70,000 into their advisory boards.
If there are only a few members, and depending on how often you meet, then compensation could be reasonable—or even surpass your expectations.
Advisors can be compensated through cash retainers, per-meeting fees, equity grants and expense reimbursements.
5. Contractual Clarity
Finally, you’ll want insight into the terms of your involvement.. Clarity upfront will help prevent misunderstandings and liability later.
Some of the things to address in a contract include:
The advisor/consultant relationship: Clarifying the role of an advisor versus a director or employee can help limit your liability.
Confidentiality: As an advisory board member, you may become aware of material nonpublic information or proprietary information. You want a shared understanding of how the company expects you to treat this information.
Conflicts of interest: An agreement should outline how actual or potential conflicts of interest will be handled.
Indemnification: While it is unlikely that you will be sued as a member of an advisory board, you still want the company to promise to defend you should the need arise.
Is Joining An Advisory Board Right For You?
Joining an advisory board is more likely to be a rewarding experience if you start with a clear understanding of what you are being asked to contribute and how. If the role aligns with your goals, making sure you have a solid contractual agreement in place helps you join the advisory board with confidence.