Building Effective Advisory Boards – Robert Fisher Interview #1

This week, I’m pleased to interview Dr. Robert Fisher about how businesses can create and manage effective, strategic advisory boards. The discussion extends my previous post about the unique role of advisory boards that fiduciary Boards of Directors and consultants don’t fill, and steps that companies often neglect when instituting advisory boards. They’re a strategic tool that has been covered only superficially elsewhere.

Robert Fisher, MD, MSPH, has advised top leadership at organizations including Kaiser Permanente, Salesforce.com, Intuit, the National Institutes of Health, Charles Schwab, Inc., and a number of startups. He often takes the role of advising senior management so they can effectively align the strategy across the leadership team and deploy it across the organization. I’ve had the pleasure of partnering with Robert on several such projects. Robert currently serves as board member of the Science and Technology Corporation at University of New Mexico, is founder of the Center for Medical Democracy (a consortia of leading advisors on healthcare policy) and CEO of Fisher Leadership Strategy.

The interview with Robert was compiled over several hours of discussion, and is split into today’s entry about creating an advisory board, and a forthcoming entry on maintaining and evolving the board.

Robert, why do you think that the use of advisory boards is growing?

In the next 1 to 3 years, I see parts of the US economy getting back into growth mode and others needing to stay lean and targeted. This means more companies need to find ways to innovate and grow the top-line faster, but with a more conservative need for full-time employees. In this situation, you’re going to find a lot of highly qualified, senior talent, who can dedicate some time to a company, without the additional burdens and costs of either consultants or fiduciary boards.

When are advisory boards useful?

Advisory boards can be brought into save the day in a crisis, or bring in expertise that doesn’t reside in the company. They work in many situations, such as a company that has expertise in its domain but has to reach out for knowledge in an emerging area of importance (such as going green); a company that’s moving to another stage in size and maturity; a business that lacks independent validation; a family-run business that is moving toward a more public-facing stance; and where a CEO needs more experience to manage a new role or expand or contract the business. Also, advisory boards are of constant value to new entrepreneurs.

How do strategic advisory boards differ from fiduciary boards?

Fiduciary Boards of Directors carry another level of obligation. They evaluate the CEO’s and the company’s finances and performance. They also take on personal risks in terms of responsibility for shareholder performance. Fiduciary Boards of Directors are more difficult to staff, more expensive to run, and the general management talent often on these boards can’t always address the complex industry issues that face a business. They’re complicated.

Strategic advisory boards, with a group of industry specialists specific to a company’s situation, can operate as an adjunct or an alternative to a Board of Directors. And they can be agile. They work strictly on business outcomes and serve their sponsors.

Can an advisory board evolve into a more formal Board of Directors?

When a company is in a one to two year pre-IPO phase and will eventually require a fiduciary board, in the interim the advisory board can take on some of those functions. This includes monitoring performance metrics including financials, the sales and R&D pipelines and customer satisfaction. Final corporate oversight is still with the CEO, but that CEO needs to become more comfortable with an independent voice critiquing performance.

Some advisory board members can be groomed to join the Board of Directors, which gives the company an immediate history on its board, knowledge transfer, and also helps develop the skills of the advisor. I wouldn’t set expectations for this upfront, however. An advisory board is a perfect opportunity to test the contributions and chemistry of a board member.

How do you design the role of an advisory board?

You have to decide what kind of board you want. It’s a derivative of your business objectives. Is there a missing need in a company for big-picture, general-purpose input; is the company going through a change that requires experience that isn’t present available; is the company under duress or needing to make change in strategic direction; is the organization at a stage of growth where it needs to change its operations from tactical/early build to a more strategic mode? There are many more variations that I see all the time when helping companies design boards.

As companies recognize the need for an external advisory board, they also have to consider governance. Will the board be driven by its leader or will it operation on a more consensual basis? That decision should be made deliberately. You want to make sure that the way the advisory board works will integrate well with the company leadership and culture.

It’s rare that an advisory board has authority to execute or make decisions unless this is made explicit at the outset of a focused assignment. Advisory boards usually are about advice, not execution. On occasion, they can be enlisted to actively participate in your business planning. You can look for board members that are eager to spend more time with you, especially if they have time outside a full-time job responsibility right now, and define a project planning role. For example, a top level business plan or financial model may be needed in a sector they have managed; or a set of criteria for selecting a supplier needs to be outlined. Consider alternative motivation or compensation models to reflect the time your board members are putting in beyond regular group meetings.

Who needs to buy into the definition of the board role?

The very idea of an external advisory board has to be acceptable to the senior leaders of the company, especially if they’re not the only ones instigating the board. It is most effective when the unit leaders proactively engage the advisory board. It can be more difficult when a sitting Board of Directors or investors suggests it, and most difficult when the fiduciary board or investors imposes it on the CEO.

So, properly setting expectations among all the participants is essential, and well worth the time before the board starts up. If the board is being given some decision-making influence and not just recommendations, it’s good to take a look at the senior leadership and see why they would allow or invite this. It may signal trouble, though it can otherwise be a sign of outstanding vibrancy. But, advisory boards have their name for a reason. Changes to their role need careful consideration and at times push back by the advisory board if they are being pulled or drawn into areas where they don’t belong. It can be beguiling to an advisory board to be invited to certain tables. It can be equally important to refuse that invitation and raise the question of why it’s being asked. That mature push back can be a valuable role for senior advisory boards.

Of course, just as in a consulting project, the company considering creating and using advisory board input needs to buy into the fact that the board is worth the investment in sharing their ideas and issues fully, providing supporting data, and working through team interactions to achieve outcomes they wouldn’t have conceived of at the outset. Time invested creates a multiplier effect, that is breakthroughs, in terms of utility. This can transform the board from the tip of the spear into a modern, strategic weapon, like an F-16.

How does the advisory board’s dynamic with management change if it is instituted at the investors’ or its fiduciary board’s request?

It’s true that, on many occasions, the idea for the board will be initiated by someone other than senior management: typically the private equity/VC investors, or the fiduciary Board of Directors, or a higher level of the corporate structure. The reason can be as simple as these experienced people appreciating the big picture about investing in deep specialists. Or, there can be an element of oversight, to help develop management’s skills, provide independent input on strategy, or drive faster improvements. Generally when you talk to the investors, they are going to tell you what’s working at the company right away. So, it’s important for the investors or the spokesperson for a board, to get this on the table upfront as part of a situation assessment. This expectation-setting should be done collaboratively with management instead of what can be perceived as punitive or a vote of no-confidence on management. This way, the outcomes are more consistent and effective.

What happens when the board mandate includes helping management develop as leaders?

A frank discussion is best, involving all parties. When an advisory board is brought in to help a company through difficult times or in a crisis, it has to be clear if the current leader is being given a chance to turn around a situation, and how much time do they have to do that. Or, is the advisory board being brought in to take on some of the executive function of a company?

One nuanced example is when VCs are the initiators of a board for one of their portfolio companies. If they are investing in a new CEO, sometimes information doesn’t flow as freely as it should. A new executive wants to be sure they look good at the outset, or prove they are on the right track. It has to be made clear at the outset where the authority flows from and what are the rules of engagement. If an advisory board or consultant is brought it, it may be seem to be with the intention of solving a tactical problem, but an advisory board may be undermined because the necessary terms and conditions haven’t been met. Any company, VCs and others, are wise to make it clear upfront that their philosophy and business strategy includes carefully chosen strategic advisory boards and consultation. That way there are no surprises and senior leaders are less likely to feel like they are being found out or doing a poor job. No amount of preparation will eliminate all of those feelings, but wisdom says you talk about it early and before problems arise. Companies that are transparent do better at this than others.

Even if the board instigators and management aren’t completely frank with each other on all the goals, the advisory board and its leaders have to make their own assessment of the situation before they accept. Advisory boards are most often used as a positive resource and are a welcome addition. If they are explicitly or implicitly undermining current leadership, it can create a further problem. This can happen; business is a tough environment and external advisory boards need to be savvy when they say “yes” to an assignment.

Where a board instigator isn’t completely comfortable sharing their concerns about management, then the chair of the board or a deft moderator can be subtle about changing the expectations of the senior leaders, to help them develop during the process, especially if it’s their first time running a company. More senior leaders will often have worked with advisors, and are more open to them or are savvy enough to know how tonegotiate the advisory role up front. That’s what senior leaders do.

So the role of corporate culture needs to be understood first?

Absolutely. The question that precedes the creation of a board is: “What is it that prompts someone to say ‘I need help’ or ‘I don’t know enough’?” On a personal leadership level, if someone isn’t great about asking for help, they’re often times in trouble right off the bat, because no one has all the answers.

At a corporate level, if a board is recommended by corporate leadership for a division and its leader, what kind of company and environment allows a senior executive to say “you know, I’m not sure here. You want to give me more resources, bring them on.” That structural piece about learning and openness in an organization is a critical dynamic affecting an advisory board’s chance of success. That takes us back to my earlier comment on authority. You need a clear definition of expected responsibility, the authority and resources to execute against it. If those are aligned, you have a shot. If not, the board members should negotiate for it up front. My recommendation is if those three vital pieces can’t be negotiated successfully, walk away from the job. Something isn’t right.

Overall, how carefully do you have to plan for your advisory board to achieve significant results?

Scott, a lot of what I am talking about in building and using an advisory board gets overlooked because advisory boards are thought of simply as tactical projects. This isn’t rocket science but sometimes the issues are about as complex. For advisory boards to yield high return and avoid pitfalls, the things we’ve been talking about have to be considered at the outset and tracked to stay on course.

Synching Team Mindsets through Creative Invention

The health newsletter of Dr. Weil has an interesting piece on how musician’s brain waves synchronize when they play songs together (“Musicians’ Brain Waves Are Also in Tune“).  A researcher at the Max Planck Institute looked at electrical activity in the brains of pairs of guitarists and found that two regions of the mind show high degrees of brainwave synchronization when they play an improvised song together.

I’m a jazz/rock musician (guitar, drums, keys, a bit of bass and vocals) who long ago decided I’d be more productive applying my creativity to business collaboration and marketing.  In other words, I wasn’t even close to the brilliance some of my friends displayed as musicians, and opted for a business career plus a classic-rock band of mid-life guys in in my basement instead. But I’ve been continually fascinated by replicating the creative environment and satisfaction of music in business environments.

“In the Groove”

A takeaway from the study, in my opinion, is that creative, right-brain thinking creates an alignment of invention and emotion that makes it fun for people to work together and to create new, breakthrough ideas. I’ve only dabbled in classical music and the fine arts, but my hunch is that the more real-time improvisational the art, and the less structured the roles, the greater potential for mental alignment.  Jazz works this way, group improvisational comedy, probably dance, and even high-performance tennis doubles.

Happy Hours as Invention Opportunities

A way to leverage this is to find a time each week for people to set aside their pressing to-do’s, and just brainstorm about business opportunities. In one of my businesses, we made this the Friday afternoon pizza hour.  The really good ideas for business improvements and new products came also exclusively via these sessions – it was the only time where people had permission to think outside their roles, stop worrying about their obligations or speaking out of turn, and pose a zany theory to see where it led. One person was assigned to capture the notes (today I would commit them live to a Wiki, chat board, or feature-request log, and if you’re really ambitious in a distributed company, you could try having people contribute in a Twitter feed).  The drinks usually associated with happy hours are completely optional (and probably not permissible in many businesses). Jelly beans work fine.

Team Productivity Enhancers – What Works…

Three other discussion threads in the same vein:

- I’ve read reports comparing team productivity in two scenarios. In both, a team is given an important business challenge to resolve. In scenario one, a team is told to go off individually, spend an hour or more researching the issue and coming up with ideas, and bringing them to the table at the next meeting. In scenario two, the team is asked to work on the problem only in group meetings. The findings about which created greater results were, that while the individually-prepared team gave “good” responses to the problem more consistently, the team only interacting in groups created breakthrough solutions that addressed more fundamental issues or new opportunities. They were able to think beyond the initial problem and invent a vision.  This didn’t occur 100% of the time, so you are taking a bit of a chance with group brainstorming, but where you are creating new ideas without a driving deadline, this approach is much more effective.

- There has been a lot of talk about how Google gives their employees 20% free time to brainstorm and create/test new inventions (see the NY Times and Fast Company). Empowering people to not only create ideas, but to develop them is powerful. And, it’s relatively easy in the software industry, where the cost of pilot production and posting something to the Web is small. However, based on experience at another major West Coast software corporation, it can get out of hand. Too many individuals can start posting too many ideas for the company to manage; creating redundant projects and unsanctioned competition between divisions and executives; and spinning off lots of unprofitable activities. A few techniques allow you to balance innovation, entrepreneurship and directional control in these situations:

1. First, document all ideas somewhere. The mere fact that someone’s idea is being recorded gives the mind positive reinforcement, and individuals/teams start taking more time to explore more ideas.
2. Second, have a prioritization process for the ideas.  I think it’s too much for any individual to have complete discretion to pursue any ideas. The best approach is to have the inventor/evangelist need to demonstrate the business case for the idea before spending more than a few hours on it. This teaches engineers and other technical types to think about ROI as a prime organizational driver.  The education takes time but is well worth it for organizational productivity – again, aligning people in the same mindset. For other companies with a more time-pressed or hierarchical style, I’ve experienced monthly meetings for the entire department (or if small enough, the entire company) where the best ideas submitted that month are highlighted, the creator is given a small award/reward, and management commits to reporting back in 4 weeks on exactly what they will do with the idea.

- Third, there’s an interesting trend toward crowd-sourcing invention, where the vast resources of talented people on the internet are encouraged to contribute en masse to projects, ranging from highly-technical R&D and licensing projects (e.g. the company Nine Sigma), to online resources such as Wikipedia type databases of cost-saving solutions for small businesses.  There’s the potential to rethink business invention and the consulting industry through crowd-sourcing.  A colleague of mine, David Gusick, is pursuing this path at Extreme Collaboration.

“Have a Nice Day” – By Creating Something with Others

If all of the above is time much to absorb for your hectic business day, I leave you with this “stop and smell the roses” thought from Dr. Weil in his newsletter blurb above: “To my mind, [the Max Planck Institute] study highlights one of the great joys of playing music, one voiced by many musicians: a sense of self-transcendence. Playing music together creates a rare chance to step outside of ourselves and our small concerns and join our minds wholeheartedly with others in creating something no individual could make alone. Seen in this light, creating beautiful music is simply a wonderful byproduct of a larger reward – connecting deeply with other human beings.”

When the worlds of business and music collide.

The Unique Role of Strategic Advisory Boards

Business advisory boards fill a unique role in strategy and implementation, whether your company is crafting a new product line, identifying cost-cutting measures, pursuing mergers and partnerships, or changing the mix of staff skill-sets. Private equity and venture capital firms especially the ROI of applying specialized executive talent to rev-up progress at an operating company, typically through a 100-day plan.

My conversations with growing (and struggling…) businesses, investment firms, lawyers, consultants and individual executives suggest that advisory boards are powerful, long-term strategic tools if you invest in managing them well. However, many firms don’t know where to find outstanding board members or relegate them to two-to-four meetings a year and a few phone calls. And, online advice about creating these boards is surprisingly generic (the highest-ranked advice-oriented links about ” strategic advisory boards, how to create” on Google are at AllBusiness.com and at Stengel Solutions).

Over several blog posts, I propose ways to use advisory boards better and interview leaders in this area.

Advisory Boards Are Not Your Usual “Boards” or “Consultants”

Strategic advisory boards are unique business support system. I define them as:

1. Non-employee teams serving senior management
2. With extensive experience and special expertise in sectors / functions that affect a business
3. Meeting together over years, though they can and should focus on urgent business decisions over the course of several months for the best impact
4. Compensated

They differ from:

• Boards of Directors, or fiduciary boards, which take on the responsibility and liability of being responsible for the financial well-being of a company’s shareholders and for evaluating the chief executive. Boards of Directors are required for public companies, but they often are populated with influential individuals with powerful connections or access to investors, rather than industry specialists. BoDs also are expensive to staff, costing five-to six-figures per member per year, to offset the increasing amounts of time and risk fiduciary board members take on. For public companies with divisions that need strategic help, or private companies that need broader business input without being evaluated on a management hire/fire criterion, strategic advisory boards are more valuable.
• Consultancies, whose pyramid-like team structure and billing rates make them suitable for critical projects of one to several months requiring deep analysis, but less so for ongoing guidance about growth opportunities and trouble spots.
• “Friends of the firm,” a category in which I include advisors who aren’t compensated for their input. Usually these relationships are developed ad hoc, based on chance meetings or existing relationships, where the company’s leader or evangelist convinces the businessperson to lend their name and be on a few phone calls in exchange for light cache. Though these individuals may receive an Advisor title on the web site, without careful selection of a group of complementary skillsets and a commitment to exploring issues at length with the firm, they usually have limited impact.

Achieving an Effective Board

High level considerations when building an effective and worthwhile strategic advisory board include:

• Compensation model. I found, through my prior business Circle of Experts, that a modest amount of cash goes a long way in getting the attention of potential advisors, and a little equity on top (a fraction of a percent) keeps their minds engaged even when not attending meetings. The total cost of many advisory boards, meeting regularly, helping with multiple decisions in detail, can be less than that of a single senior employee and less than 1-2% of equity for a start-up.
• Information sharing. Too many advisory boards meet semi-annually, and beyond that are contacted individually by phone. That’s because the company’s management team has a lot on their plate and lose track of the time investment needed to support the board. Anyone who has been in a consulting field realizes how critical an understanding of a business’s culture, it’s operating metrics, and competitive context is to making effective decisions. Therefore, advisory boards can benefit from a light “information portal” where they can read a summary of relevant news and data, post ideas for discussion online immediately or in-person at the next meeting, and track results of programs.
• Evolution. For strategic advisory boards, some members will prove useful advisors over years, while others will be a best fit for specific projects. Both members and the company should explicitly discuss how their needs change and set 6 to 12 month reviews of their relationship. This makes it easier to switch to a looser “stay in touch” commitment , while introducing new talent.
• Facilitation. Good advisory boards are comprised of a range of personalities, experiences that interact with management to come up with new solutions. But this isn’t easy. Think about staffing a consulting team where each member worked at a different firm, in a different location, put in an “all members are equal” starting situation. Instead, effective boards explicitly establish and regularly refine their rules of engagement, including scope of responsibility (for example, is management open to the board proposing new programs or highlighting company problems that management hasn’t put on the agenda), conflict resolution (including the acceptance of vigorous debate and approaches to re recognize and address personality conflicts), meeting agendas and between-meeting time commitments. This facilitation itself takes a special skillset and experience base.
• Commitment. All of the above point to a shared commitment to exchanging information, researching opportunities, and improving process that has to occur during and between meetings. The board needs to be thought of as a strategic weapon, focused on top-of-mind questions, rather than a “nice to have on the website” marketing tool to be worth creating. In turn, some members will want to contribute even more time to your business, for example, editing a investment prospective or QAing a major implementation plan.

Next… Managing Board Dynamics

In my next post on this topic, I’ll be interviewing Dr. Robert Fisher, board member of the Science and Technology Corporation at University of New Mexico, Founder of the Center for Medical Democracy (a consortia of leading advisors on healthcare policy) and CEO of Fisher Leadership Strategy about his experience making boards work.