Podcast Transcript

[00:00:00] Sean Steele: Hello and welcome everybody to another episode of 10 Minute Tuesday. I'm your host Sean Steele, and I've been recently fielding questions about Governance Boards versus Advisory Boards because lots of Founders don't really know the difference between the two. They may have never have had exposure to either but they are typically a support structure that businesses, when they're professionalising and seeking to scale up, tend to get support to implement by people like myself. I've been a director of five companies on the Governance Board now as an Executive Director, but I'm also an Advisory Board Professional. I'm a Certified Chair, I'm a Fellow and I'm also a member of faculty with the Advisory Board centre where I train other Advisory Board chairs. The Advisory Board centre is the peak body for Advisory Board professionals globally. So, I can talk with some experience to how Advisory Boards and Governance Boards work, but noting I spend the majority of my time in the Advisory Board space, not in Governance Board space. So first of all, I think there was a conversation some time ago which was like, Advisory Boards versus Governance Boards.

[00:01:00] Which one is better? Which one is the dodgy one? Which one is the good one? It's not like that. There's no better or worse. They serve completely different functions, and in fact, they actually work best when they are both part of an ecosystem of decision making. And the reason for that is they actually suit completely different requirements. So, it's about what's relevant, what's the right support structure for a business based on their size, their complexity, their goals, and their stage of business. So, what I thought I'd do today is just unpack a high-level summary of what do Advisory Boards look like, and then what do Governance Boards look like? What's their sort of construct, pros and cons of both. And then give you an analogy of actually how they can work together. Because lots of people haven't really probably considered that. So, let's start with Advisory Boards. An Advisory Board is a problem-solving support structure that provides strategic non-binding advice.

[00:01:57] So it's there to help road test ideas to navigate big challenges and to give you as a Founder, fresh perspective. And they are typically suitable for businesses that want to scale up, businesses that want to prepare for exits or businesses that are trying to build for succession, you know, step back and install management. So, they typically help with things like growth strategy, exit strategies, investments, succession, maybe road testing, new products, new service ideas, new business models, market expansion, capital raising, or even transforming the organization in some way, whether it's digitally or in some other way. They are probably not that suited, I would say, to Founders who don't really like their ideas being challenged or who procrastinate and aren't highly action oriented, or of course are engaged in anything legally or ethically questionable. But it's a really flexible structure because advisors on an Advisory Board can be replaced as the strategic priorities change for the business. So, they're not sort of there and locked in for a long period of time. 

Cost-wise, Advisory Boards typically cost somewhere between 50 and $70,000 a year for the full Advisory Board, to have a chair who meets with you 12 times a year. And four of those times is with additional advisors in a structured Advisory Board format, and the rest of it's more like a mentoring type session. 

So, pros. An Advisory Board, it's targeted problem solving. The Founder retains control of the company. It's flexible and there's not as much administration to prepare for meetings and it's less expensive than a Governance Board.

[00:03:35] On the cons side you're not sharing your decision making because fundamentally the Founder's still making the decision. So, whereas in a Governance Board, you're sharing decision making, other people are actually involved in making decisions. One of the other cons, there's limited consequences for advisors if they provide poor advice because they're not liable in the same way as a director might be. And advisor or remuneration, they're usually fee for service independent professionals. And therefore, their remuneration is not tied to financial performance, which quite often directors are end up with some kind of inequity stake. Of course, not all of them. But therefore, which can be a benefit; can be a con, but also can be a benefit.

[00:04:14] So that's super high-level summary. And if you're looking for more detail, I actually put an article up on my Scale Smart on LinkedIn. If you're not following me on LinkedIn, jump on LinkedIn. Or you can go to the website www.scalehq.com.au/blog, or just click on the blog link and you can put your email down there and you'll get the weekly blogs as they come out.

[00:04:35] Governance Boards. I also did a blog on Governance Boards, both on LinkedIn and through the blog site. But Governance Boards, they are responsible for agreeing or setting, depending on who you talk to, the strategic direction of the business. And for monitoring its performance. And for helping to manage risk and ensure compliance with the legal and regulatory and ethical standards. And so, they particularly come into their own when you are considering major external financing, if you are thinking about executing perhaps multiple acquisitions, if you're intending to go public, if you've got really complex operations or if you're planning like a really major succession and change of control in the business. They bring good Governance structure and discipline to a management team. They also can be awesome at helping to manage relationships with investors and creditors to make sure the business meets its obligations so the Founder or the CEO can continue to just focus on the operating part of the business. They can, however, on the cons side or from a cost perspective, I should say they can be expensive. You know, you're probably going to cost you somewhere between 100 and 500 grand a year, depending on the size and the complexity of the organisation. So of course, they naturally suit sometimes larger businesses on the way up. 

Pros of Governance Boards. They can help you really streamline your day-to-day decisions because you know what decisions need to be escalated to a Board. And so there's actually some decision-making support, not just all on the shoulders of the Founder. They bring all sorts of different perspectives and skill sets to strategic issues. They can help you navigate those potential shareholder or investor relations issues if you are in the space where you've got shareholders or investors. And as I said, the good Governance and structure and discipline they bring also helps to enhance people's confidence in and the credibility of your business. So, that can be a real major benefit to you. 

However, they also dilute the control usually of the company. There is a lot more administrations on the cons side. There's a lot for more administration and report writing and preparing documents. And that's because those directors are liable for the decisions they make. So, they need to be well prepared with information to be able to make good decisions. And one downside is sometimes it can be a bit difficult to change directors out if they are no longer providing value, and of course it's a bit more expensive than Advisory Boards.

[00:06:54] So now that we've got a basic understanding of the difference between the two, I wanted to give you an analogy that'll help you understand the roles and the differences between those two types of support structures and how they can help you scale your business as a combination, not as an either or. 

So now this assumes by the way that you are a Founder who's also an Executive Director. Like you still the majority shareholder, you're on the Board, but you're also the CEO. And you've probably already started with an Advisory Board function, but then at some point you added a Governance Board function. It's not usually the other way around. So, I want you to think of your business as a professional basketball team. And I know that not everyone on sports analogies, but just go with me on this because I think you'll find it useful. So, just imagine you as the Founder and the CEO are like the head coach. You have vision for how the team should play. You make the final decisions about the strategies and the tactics. You're responsible for the performance of that team, and you also decide which players you're going to put on the court and when, and you make adjustments in real time during the game based on what's actually going on. So, the Governance Board for you is like the team's management. So maybe like, the club president, the club CFO or maybe the club GM. They work with you as the head coach to provide guidance on strategic decisions like player recruitment and budget allocation and long-term planning. And they're a decision-making body and they're there to help shape the direction of the team. But the final decision on game day strategies and tactics still rest with you as the head coach.

[00:08:16] Again, this assumes that you are the Executive Director, but what about the Advisory Board? Well, they are kind of like a group of expert consultants that you bring in to help your thinking. So, you know, the legendary former player or the renowned sports psychologist or the most well-regarded strength and conditioning coach, they don't have a direct role in managing your team. They provide you with advice and insight based on their expertise. So, they might suggest new training methods. They might give you advice on how to develop your players or how to handle high pressure situations. So, they're a problem-solving body. they are there to provide solutions and advice to enhance your team's performance, but it's up to you and the team's management to decide whether to take that advice or not.

[00:09:07] So, I hope that's helpful. Hopefully that is a useful analogy to get your head around, like the difference between that Advisory Board and Governance Board structure. Over the coming months though, I thought I might unpack, I mean, because this is the world that I spend a lot of time in, right? When I'm not a podcast host, I am running ScaleHQ and we help seven-figure Founders scale up or step back and install management or prepare for exits by providing mentoring, Advisory Boards, courses and community, I found a mastermind model and because I spent so much time in the Advisory Board space, I thought maybe I should unpack some of the kinds of topics that I end up advising on in Advisory Boards to give you some ideas around the things that get explored and some of the challenges and questions and advice that I provide to Founders, either for myself if it's sort of like an Advisory Board of one where I'm the only advisor or whether I'm the chair and there are other advisors who also participate on that Advisory Board.

[00:09:54] So, I look forward to sharing some appropriately de-identified stories with you so you can hear what kinds of things Founders are facing and what kinds of questions they typically get asked in those scenarios, because some of those might be helpful for scenarios you are dealing with at the moment.

[00:10:08] If you feel like you'd like to have some wisdom in your corner to help you succeed, you can just head on over to www.scalehq.com.au and click on Advisory Boards or http://www.scalehq.com.au/AdvisoryBoards . There's a free booklet there you can download, explains all about it, how it works, the investment, all the rest. And if you'd like to organize a discovery call with me to see if it's the right support structure to you, which by the way, it may not be. I can give you some guidance on what I think would work well for you. That might be mentoring, that might be an Advisory Board. That might be none of the above. That might be a consultant or an expert or maybe some other chair or Advisory Board, not myself or somebody from ScaleHQ, one of our other expert CEOs. My intention is to make sure that you get the right support for you. So please feel free to use me as an asset to help you do that. I do not walk in with assumptions about what it is that you need and what's the right support structure, but I love exploring that with people to make sure they get what they need and they can achieve the outcomes they're after. Hope you found that useful. I'll be chatting to you again next week.