Category: Starting a Business

An Advisory Board (or Advisory Council or Advisory Committee) is a collection of people formed to advise members of a governing Board of Directors. The Advisory Board does not have formal authority. It cannot issue directives that must be followed as is the case with a governing Board.

There seems to be an increasing number of Advisory Boards. Far too often, an Advisory Board starts out slow and then stalls out completely, or very rarely meets and ultimately is not taken seriously at all.

An Advisory Board can be a tremendous complement to the effectiveness of the governing Board of Directors as it works to address a complex consideration or to undertake very specialized project. Those are the best reasons to form an Advisory Board.

However, sometimes Advisory Boards are used to try maintain formal and visible relationships with people who have particular strong status, for example, people whose terms have expired on the governing Board, leaders in the community, or people having highly respected skills. Those are usually not good reasons to form an Advisory Board – or at least, they’re not good reasons to expect much from an Advisory Board.

The influence that Advisory Board members have in their recommendations to the governing Board depends on the charter, or formal description of the Advisory Board. The most useful Advisory Boards are organized almost as carefully as committees on governing Boards. For example, for Advisory Board “ABC”:

• ABC meets on at least a quarterly basis. Meetings are scheduled by the ABC Chair who also develops agendas for the meetings.
• ABC provides written recommendations to the governing Board regarding operations and coordination of product DEF.
• ABC is comprised of 9 members, each representing a major geographic area of constituents of Product DEF.
• Membership of the ABC is selected on an annual basis by the governing Board.
• ABC members serve a one-year term, which can be renewed two times.
• ABC is facilitated by a Chair who is appointed by the governing Board. The ABC Chair serves a one-year term and is a member of the governing Board.
• ABC recommendations are formed by a vote of the majority of the members of ABC.
• Highlights of, and recommendations from, all ABC meetings will be documented in meeting minutes and provided to the Board Chair of the governing Board within 2 calendar weeks of the ABC meeting.
• Operations of ABC are evaluated annually by a Committee comprised of 3 members of ABC and 2 members of the governing Board.

(The terms of the charter might even be itemized in a set of bylaws for the Advisory Board.)

It’s often best to have a member of the governing Board on the Advisory Board to ensure that the governing Board is always aware of the activities of the Advisory Board. That practice also ensures that Advisory Board members feel some legitimacy in their roles – that they feel that they’re taken seriously by the governing Board.

An Advisory Board is as useful as you expect it to be. If you formally charter the Advisory Board, then its members are more likely to realize that you take the Advisory Board very seriously. If you “park” people on the Board just to somehow keep a relationship with them and then expect that Board to somehow be useful, you’ll likely end up instead with a collection of people who just feel “parked.”

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

The issues surrounding Goldman Sachs highlight many of challenges facing the business ethics industry. There has been a public furor over the integrity of certain industries, such as finance, even though the leaders of those companies can state categorically that they acted legally, and ethically, within the guidelines they have worked within for some time.

However, our common sense notions of what is ethical and what is fair are determined by social norms. What then are the responsibilities of leaders in firms, and in industries whose ethics have been challenged, to acknowledge changes in how our society perceives them? Is it better to batten down the hatches and wait out the storm, or to develop the means to engage in an effective dialogue with these external stakeholders to maintain trust?

Much of the furor over Goldman Sachs rests in our collective ambivalence over Wall Street itself. Is there something inherently unethical about the entire trading industry?

The Senate hearings highlighted a mismatch in how Wall Street sees itself and how it is seen. Goldman’s witnesses said a market maker—someone who matches buyers and sellers—has an obligation to describe accurately the product being traded, but needn’t disclose his own position. Are we surprised that a trader can take the stand and simply say that we were doing what we’ve always been doing?

Maybe they have, and it’s us that are changing our expectations?

Does the nature of the federal bail-out change our definition of what is ethical?

While it may sound trite at first, this gets to the heart of the perceptions of trust and the commitments that were broken. Big boys on Wall Street can do what they have been doing for 200 years. Caveat Emptor.

But when Wall Street is financed by Main Street, new relationships are formed. Firms now have new sets of stakeholders, and they are required, if not by law, then by social convention, to maintain a relationship based on trust.

Trust requires a whole set of expectations that run counter to the caveat emptor trader culture: predictability, looking out for the other person’s interest, etc. It’s when these values clash with our independence and freedom values that drive our entrepreneurial trader side that we see the fireworks.

(The following post applies as much to for-profit Boards as nonprofit Boards — many for-profit Boards, especially in family-owned corporations, operate as working Boards.)

A “working Board” is a personality of a governing Board. There is no clear delineation as to what’s a definitely a working Board or not. However, it’s commonly viewed as a Board where members are doing a lot of staff-related (or employee-related) activities. New organizations often have a working Board.

I sometimes get calls from consultants wanting advice about certain situations when they’re working with Boards. It’s not uncommon that they’ll comment that a Board is a working Board and therefore needs to mature to a “policy Board” where members attend exclusively to strategic priorities and decisions. I often disagree with that assumption.

It’s fine to have a working Board — as long as Board members are also attending to more strategic decisions. So it’s OK that they might be fixing the fax machine one day. However, later on, they should also be discussing the purpose of the organization and its most important priorities.

The personality of a Board depends more on what the organization wants to accomplish than on any natural order that the Board must evolve to a policy Board. The more the organization wants to accomplish in its markets or its communities, the higher the likelihood that more resources will be needed (including more paid staff) to do that, and the higher the likelihood that the Board will need more attention to governing the increasing range and complexity of resources. Thus, the more the organization wants to accomplish, the higher the likelihood that a Board will evolve from a working Board to a policy Board.

Some very smart people have decided that they’d rather their organization was “a rifle than a shotgun” — that it do a few things very well, rather than a lot of things not so well. Those people will have carefully scoped what they want their organization to accomplish using a limited amount of resources. So those very smart people might have a working Board — a Board that does not need to “mature” into a policy Board.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

What About “Big Names”?

Many Board members believe that adding a very prominent person to the Board will bring great prestige and credibility to the Board. They believe that funders and other organizations will take those Boards much more seriously. Often, that’s a big mistake.

Rarely do those famous people ever show up to the Board meetings. I know of several cases where the “big names” didn’t even know they were on the Boards – the organizations had simply put their names on the lists of Board members!

Nonprofits often believe that big names will impress funders to contribute to the organizations. Funders are much smarter than that. Nonprofits can severely damage their credibility when they can’t prove that the big names were really on the Boards in the first place.

What About “Big Pockets”?

Nonprofits also often believe that “big pockets” (rich people) are more likely to donate to the organization if those people are also on the Board. Usually, the last thing they want is to be burdened with is the responsibility of attending Board meetings. Many times, they’d rather write a check to the nonprofit instead!

You’re far better off to find Board members who actively participate in Board meetings and committees, and who will help find “big pockets.”

Summary

Would you ever hire an employee because he was very popular (a big name) and then expect him/her to never show up for work? Would you ever donate to a nonprofit if that nonprofit also asked you (a big pocket) to come to regular Board meetings?

A dear friend of mine is a highly respected CEO. She said that one of her greatest moments of learning was when she quit acting like she was lucky to even have Board members attend a meeting. Instead, she realized that her organization deserved to have active Board members.

Don’t seek to find prominent or rich people to put on your Board. Instead, find people with passion for the mission and also the time and energy to be active on your Board. They will ultimately bring credibility and funding to your Board through their good work on the Board.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

As opposed to offering opinions without having all of the background and knowledge, I thought it might be more helpful to start a discussion about the questions:

Many people have written that Toyota’s problem was that it sacrificed a core value of safety for profit. To frame the issue this generally is to miss the point of the real challenge Toyota was facing: not trading one value for the other, but how to effectively balance the two.

No company can sustain profits if it builds unsafe cars. So Toyota cannot jettison safety for profit. Similarly, there is always inherent risk in any product. Even the public assumes some degree of risk. Toyota, as well as any car manufacturer is not expected to make their product 100% safe. So how do they decide what is “safe enough”?

Now we can look at an ethics issue. The ethical dilemma is in how Toyota grappled with that decision. Who had information but didn’t report it up to senior leadership? Why not? Which stakeholders, internal and external, were not included in the decision-making process?

The public on both sides of the Pacific does not begrudge Toyota making a profit. But building complicated machinery that is sold to millions of people demands inclusion of many voices in multiple decision processes. If there is a lesson to be learned, it’s the role that transparency can play in making the tough decision.