A minority of SME leaders are supported by an advisory board. The main obstacle to implementing such an arrangement is the work needed. This is even though it would improve growth and productivity. This is what is shown by the results of the first Canadian study on the effect of advisory boards published by the Business Development Bank of Canada (BDC) and conducted among 1,000 SME leaders across the country.
Only 6% of Canadian SMEs have an advisory board to help them manage their business. Companies that have one have generally been in business for 11 to 20 years, have more than 20 employees and operate in the fields of distribution (12%), business services (9%) or manufacturing (9%). Furthermore, 19% of SMEs depend on a Board of Directors. Three quarters of companies operate with neither an advisory board nor a Board of Directors.
A demand for expertise and support
Leaders who have decided to set up an advisory board are motivated by: seeking additional expertise (21%), the need for advice and support in decision-making (20%), the feeling of making a sensible decision (17%) and helping company growth (13%).
86% of SMEs that have an advisory board believe it has an essential role in their success. In the leaders’ eyes, the main positive effects are developing the company’s vision, innovation, risk management and improving profitability.
The advisory board, an asset for company growth
By analyzing the financial variables of companies based on tax data from Statistics Canada, the study highlights the role of the advisory board in SME growth. In the three years following creation of an advisory board, companies recorded a growth of 66.8% compared to 22.9% for the previous three years. It’s the same story for productivity which increased an average of 5.9% in the three following years compared to 3.2% for the three previous years.
Leaders who use an advisory board have more plans for the company’s future than those who don’t use one. 58% of them envisage plans for growth or restructuring, compared to 35% of those not using either an advisory board or a Board of Directors. 56% also have plans for expansion into new local markets, compared to 34%.
Some obstacles to be overcome
57% of companies without an advisory board consider the time, work and effort necessary to establish it to be a real obstacle. This perception is reflected by leaders who do have one since 48% or them consider that the advisory board creates a considerable amount of work for the company. However, according to them the benefits of having one should be promoted (45%).
Specific skills sought
Advisory boards set up by SMEs consist of five persons on average whose skills most in demand are accounting or finance (65%), marketing and sales (51%), human resources (43%), expertise in the company's field of activity (38%) and operations (37%).
Advisory board members are mainly recruited through the company’s network of contacts (56%). Leaders rarely depend on external recruitment resources such as professional services, a private company, an association or advertising (8%). Only 3% have asked their financial institution or an investor.
Advisory board members meet regularly. 60% meet monthly or quarterly. Finally, although most members offer their opinions and advice free of charge, 43% of leaders compensate them with a fixed amount or a reimbursement of travel costs.
Les membres des comités consultatifs se réunissent régulièrement. 60% des rencontres ont une fréquence mensuelle ou trimestrielle. Enfin, si la plupart des membres offrent leurs avis et conseils gratuitement, 43% des dirigeants les rémunèrent sous forme d'un montant fixe ou alors du remboursement des frais de déplacement.