The Relationship Between Governance Boards & Advisory Boards

FOREWORD

In our latest webinar, “The Relationship Between Governance Boards & Advisory Boards”, which was hosted by our Founder Louise Broekman, and featured Certified Chair™ Sonya Beyers, we explored the uncharted terrain of the relationship between governance boards and advisory boards.

For those who may have missed the webinar, this wrap-up summarises the key insights shared by Louise and Sonya as they delved into the differences, points of alignment, and potential impacts that the two types of board may have on the evolving business landscape.

Governance Boards and Advisory Boards – What’s the big difference?

To better grasp the relationship between governance boards and advisory boards, let’s first dive into the key distinctions between these two key structures.

Governance Boards wield decision-making authority, and their decisions carry binding implications for the organisation and those who sit on the board. Once a direction is set by the governance board it is expected to be implemented.

Advisory Boards in contrast, serve as problem-solving bodies offering suggestions or advice that is non-binding, to support organisations with their decision-making. They can consist of a single individual or a group of independent, unbiased, external advisors.

Traditionally, these roles were seen as separate and independent. However, emerging market Megatrends suggest a potential shift toward greater alignment between these two distinct structures within a new Governance ecosystem.

What Megatrends?

Our Global Research Council recently released the 2023 State of the Market Report earlier this year, sharing findings on the shifting and evolving business landscape. One key Megatrend is the increasing importance of the Stakeholder Economy, where organisations can no longer simply look after the bottom line, but must place more value on its Stakeholders.

Both internal and external stakeholders are becoming increasingly influential on organisations, particularly those across the PESTLE landscape (Political, Economical, Sociological, Technological, Legal and Environmental).

As we begin to see more organisations being held accountable for their decision-making in the public eye, organisations are looking beyond profits and addressing areas that have historically been ignored, such as environmental footprint, cyber security and the emergence of AI, and gender and race diversity.

The second Megatrend we’re seeing, is the emergence of Governance Systems, where governance boards and advisory boards start working hand-in-hand, to produce a more effective model of decision-making.

The Evolution of Advice

The rise of these two Megatrends has sparked a notable shift in the business leadership landscape, influencing the reliance on advisory structures. As these Megatrends continue to shape the corporate world, it becomes crucial for business-leaders to assess and adapt their advisory structures to align with this new style of governance system. However, is this transformation as straightforward as it seems?

Sonya questioned if governance directors are open to shifting their mindset. Whilst the tide is still changing, many organisations are yet to adapt to this new model and ultimately governance boards need more influence to embrace these changes. Sonya asks ‘How can we put in place arrangements whereby that independent chair of an advisory board can bring forward the stakeholder view, [that] they can be listened to and they’re not just battered back by the governance board?’

With a diverse portfolio across both governance and advisory boards, Sonya offers her perspective into the advisory arena and how the dynamics of both of these roles can interact with each other in order to best support the organisation. Consequentially, if these roles aren’t in harmony, how does this impact the organisation?

Sonya suggests those who sit on governance boards really should be asking themselves:

• Who am I accountable to?
• How do I make sure that this group assesses risks and identifies issues that get raised through to the next level?
• How do we check, that as the internal body who’s representing the governance board, that the Advisory Board is functioning well?’

The challenge of governance board members remaining in their roles for too long was raised, placing emphasis on the importance of remaining current and provision of advice that is both relevant to, and reflects changes in, modern society.

Similarly, external Advisors should reflect on their roles with the organisation to sense-check their purpose on the advisory board and identify whether they’re truly adding value to the business.

Another key factor to consider in the evolution of advice is remuneration, raising the question of  how to assess if the advisory board is going to be remunerated and then how to evaluate if that remuneration has been earned effectively. Without some form of measurement, it could result in some advisors sitting longer than they ought to.

‘It all comes down to purpose’, Louise explains. ‘The establishment phase of an advisory board is just so mission critical’…’no value, no seat’, says Louise, ‘and that covers both the governance board and the advisory board’.

Setting clear guidelines and KPIs early on to ensure the advisory board is truly fit for purpose and offering value to the organisation is key to its success.

How do we enhance the effectiveness and value of governance systems?

• Leveraging Megatrends: As governance board agendas expand, the influence of the Stakeholder Economy is becoming more pronounced. Business leaders and governance boards should prioritise external and independent advice.
• Embracing Change: Identifying these Megatrends is just the beginning. Business leaders and governance boards must actively embrace change. In some industries, such as the Aged Care sector in Australia, advisory boards are mandated, and this shift is likely to extend across various sectors, particularly those within the PESTLE landscape.
• Wider Adoption: The traditional presence of governance boards in large organisations is evolving. With increased societal responsibility, businesses of all sizes are turning to independent, unbiased advice.
• Assessing Advisory Boards: Business leaders should evaluate the value provided by their advisory boards and ensure they align with the organisation’s needs. Establishing a functional governance system where governance boards collaborate effectively with their advisory counterparts is essential for organisational success.
• Accessing External Counsel: Business leaders who haven’t yet implemented independent advisory boards can benefit from external counsel. This approach allows organisations to address emerging business landscape challenges without the need to expand their governance boards’ size or scope.