Posted by: Bill von Achen | January 15, 2010

The Value of Outside Advisors

Company boards with outside advisors are more likely to provide value to CEOs than boards comprised solely of employees or family members, according to a Harvard University study.

The study, which polled more than 300 CEOs, found that 91% of CEOs at privately held companies with outside advisors find their board meetings either valuable, very valuable or extremely valuable. This contrasts sharply with the opinion of CEOs at privately held companies with no outside advisors, where 56% of respondents find their board meetings either not valuable or a waste of time.

The Harvard study also revealed that outside board members and advisors are most helpful in the following five areas:

A source of objective advice: Outside advisors can more frequently bring objective advice that isn’t tied to job security or family loyalty.

An instrument of accountability: Outside advisors are usually more effective than employees and other inside advisors in holding owners accountable for their company’s performance.

The benefit of perspective: Because outside advisors are not caught up in the day-to-day issues of running the business, they provide a distanced perspective on the most important issues confronting the company.

Access to a network of contacts: Outside advisors typically have access to a large network of resources, including other advisors and consultants. Some advisors may even be able to provide sales leads.

Assistance in setting executive compensation: Particularly important in a family-owned company with both family and non-family managers, outside advisors can provide business owners with a buffer when it comes to determining appropriate managerial compensation.

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