An advisory committee – is it really necessary?

An advisory committee – is it really necessary?

May 11, 2016

Business and Corporate LawNormand Therrien

Statistics complied by the Business Development Bank of Canada indicate that it is important for Canadian SMEs to consider the positive impact of an advisory committee in managing a business today. While barely 6% of Canadian SMEs use an advisory committee, their financial results are by far superior after putting one in place1. Such a committee is charged with the task of providing advice and recommendations to the owner regarding different facets of the business in order to promote its growth and good management. However, the people sitting on the advisory committee do not share the same duties and obligations toward the public, shareholders and creditors as the members of the board of directors. Members of the committee are only required to share their experience and opinions to help you make good decisions.

To put this type of committee in place you must invest a certain amount of time and money, which naturally begs the question - is it really worth it? In my opinion: ABSOLUTELY. However, if you want to maximize the beneficial effects that a committee may have on your business, care must be taken in choosing your collaborators and in ensuring their commitment.

As already mentioned, an advisory committee is not a substitute for a board of directors, however they have certain points in common regarding their governance. For example, an advisory committee meeting must be planned in advance just like a board meeting. An agenda and specific information regarding the meeting must be sent to members in advance to ensure that they will be properly prepared. If the members are not properly prepared, the advisory committee will lose much of its usefulness.

As for the size of the committee, the general rule is that the number of members should be limited in order to facilitate discussion. A committee of between four to six people, including you, will usually be enough to provide different points of view and a broad range of knowledge. The members must be qualified and well-respected and must be a good fit in terms of your strengths and weaknesses. For example, if numbers are not your strength, you will definitely benefit from the input of an experienced accountant on your advisory committee.

Moreover, you must be open to suggestions and criticisms of your advisory committee. Ignoring their feedback or reacting badly to any criticism from members of the committee is simply a waste of your time and money . Likewise, this type of committee will be unable to properly serve its purpose if it doesn’t have access to confidential information regarding the business, so you must be willing to share sensitive data. Good practice requires that a confidentiality agreement should be signed by members of the committee who are not bound by professional confidentiality.

In my experience, an advisory committee is a must for all SMEs as it can act as a trigger to boost the reputation of the business, stimulate it to innovate, improve its margins and help in managing human resources.  All these benefits are definitely worth the efforts required to put in place an effective advisory committee.

As a final point, quarterly meetings are recommended because this will not unduly burden the members of the committee and will give them sufficient time to prepare. I  would also suggest that you sufficiently compensate the members of your committee for their participation. This does not mean at the same rate that you pay members of your board of directors, but the amount must be significant enough to attract competent people who will take the time to diligently prepare for committee meetings.

If the benefits of an advisory committee appeal to you , don’t hesitate to contact one of our professionals regarding a seat on your advisory committee; we have the success of your business at heart. 

1 Business Development Bank of Canada, “Advisory boards:  an untapped resource for businesses,” (2014), on line: https://www.bdc.ca/en/about/sme_research/pages/advisory_boards.aspx

Please rate this article
0
Add
Rating successfully submitted
An error occured
Results1 - 10of1000

Your team in Business and Corporate Law