Boards of Advisors in Small Businesses
Results
We received 258 useable responses for a 10.32% response rate. Of the 258 responding firms, thirty firms (11.6%) have an Advisory Board and 228 (88.4%) firms do not have an Advisory Board. Of the 228 responding firms that do not have an advisory board, 208 have a Board of Directors.
Composition and Size of Boards of Advisors
We found that of the 258 responding small businesses only thirty have a Board of Advisors. In addition,
twenty-five of those companies also have a Board of Directors, with an average size of 9.2 directors. Therefore, just
five of the firms have only a Board of Advisors. This is a somewhat surprisingly low figure in light of the apparent
advantages and low cost of having a Board of Advisors. A very high percentage (90%) of the members of the
Boards of Advisors are still active in businesses. This suggests the possibility that there might be a good supply of
retired business managers who would be available for service on a Board of Advisors. It also suggests, however,
that the responding executives prefer to have members who are active in business; since the managers get to choose
their board members. Regarding the ethnic makeup of the boards, over 90% of the members are either Caucasian
(77.7%) or Hispanic (12.8%). This might reflect the racial distribution among managers, but suggests the potential
of including more African American and Asian American members, which make up only 5.7% and 2.4%,
respectively. Boards of Advisors ranged in size from two to 150, with and average size of 17, and males constituted
67% of the membership.
Table 2: Composition and Size of Boards
| Freq |
(%) | |
|---|---|---|
| Average Size of Board of Directors (Quest. 2) | 9.2 | (range 3 to 20) |
| Firms that have a Board of Advisors (Quest. 3) | 30 | (100%) |
| Number of advisors in each category (Quest. 5) | ||
| Percent | ||
|
90.0% 7.7% 2.3% |
|
| Total | 100.0% | |
|
77.7% 12.8% 5.7% 2.4% 1.4% |
|
| Total | 100.0% | |
| Size of Board of Advisors (Quest. 10) | Freq | |
|
17 2-150 13 |
|
| Gender of board members (Quest. 11) | ||
|
67% 33% |
Table 3: Formation and Use of Boards
Decision to Use Board of Advisors (Quest. 6, multiple responses):
|
Freq 11 10 7 4 |
|
Freq 2 2 1 0 |
|---|---|---|---|
Types of Assistance Sought from Advisors (Quest. 7):
|
Freq 22 14 13 11 8 6 |
|
Freq 5 4 3 2 6 |
Types of Expertise Sought Quest. 14, (multiple answers):
|
25 20 17 14 14 |
|
8 3 1 0 |
Backgrounds of advisors (Quest. 17):
|
Percent 39.4% 12.3% 10.1% 7.8% 7.1% 6.3% 4.5% 12.5% |
Formation and Use of Boards Regarding the decision to use a Board of Advisors, the sources are almost all internally generated. Responding CEOs and Presidents indicated that the most frequent reason was "suggested by management" (11). This is a positive sign since the literature and the study by Morkel and Posner indicate that management's attitude is most critical to effectiveness of a Board of Advisors. Next in frequency were "came upon idea at a meeting" (7) or "suggested by a director" (4).
With regard to the type of assistance that executives seek from board members, responding executives sought assistance on strategic planning (22), developing strategy (14), marketing strategy (13) and public relations (11). One interesting finding was that "finance/accounting" was mentioned infrequently (only 3 times). This might indicate that the managers either feel confident in their finance/accounting abilities or they rely upon their CPA or other financial advisors for such advice. Given the recent SEC requirements for financial expertise on Boards of Directors of publicly traded firms, small businesses might consider including someone with finance and/or accounting expertise on their Boards of Advisors.
Regarding the types of expertise sought from advisors, practicality and relevance to the company and its
industry were most important. The executives rated "practical experience" (25) and "good common sense" (20)
most frequently. This was followed by "industry experience' (17), "practical experience" (14) and "creativity"
(14).
Managerial/strategy is the most frequently mentioned (39%) background of the members of the Boards of
Advisors. This shows the importance that the responding executives place on getting members who can see the "big
picture" and can focus on strategic planning. This is consistent with the results on Question 7, where strategic
planning is the most frequently mentioned type of assistance sought from advisors. Apparently, the small business
executives are relatively comfortable with their own abilities in the areas of human resources, engineering and
technology, since they were mentioned least frequently.
Interaction Between Management and Advisors
One of the most positive findings from the survey was the response from executives on the interaction
between management and the Board of Advisors. Almost all respondents rated this interaction as either "good"
(50%) or "excellent" (47%). This should be encouraging to small businesses that are considering the use of a Board
of Advisors. Responding executives cited some problems in working with advisors. Two of the results show the
emphasis of management on practicality; "Advisors lack practical expertise (6) and "advisors seem too theoretical"
(4). Two other reasons cited on this question also appear to be related: "Advisors don't take time to understand
company's problems" (6) and "Advisors too interested in getting business for themselves" (5).
Table 4: Interaction Between Management and Advisors
Interaction between advisor and senior management (Quest. 15):
|
Freq 14 15 0 0 1 0 |
(%) (47%) (50%) ( 0%) ( 0%) ( 3%) ( 0%) |
|---|---|---|
Problems with advisors (Quest. 16):
|
Freq 6 6 5 4 2 6 |
Meetings and Compensation
Most (24) of the responding CEOs and Presidents meet with their Board of Advisors on either a quarterly
(17) or annual (7) basis at the company offices. In addition, most companies (53%) do not compensate their
advisors. This is consistent with some of the literature that suggests that most advisors serve because of interest in
the company and that advisors should not be compensated. Where advisors are compensated, it is usually (8) in the
form of a meeting fee. Stock or stock options are not given to advisors by any of the firms responding to the survey.
Table 5: Meetings and Compensation
Frequency of meetings (Quest. 8):
|
Freq 3 2 17 7 1 |
|---|---|
Location of meetings (Quest. 9):
|
Freq 20 7 0 4 |
Board members compensated (Quest. 12):
|
Percent 47% 53% |
Form of Compensation (Quest. 13):
|
Freq 8 4 4 3 0 0 0 0 |