September 28, 2006 Webcast Executive Summary:

Building Effective Advisory Boards & Their Importance to Growing Businesses

Sponsored by: SBE Council & Grow Fast Grow Right

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Growing Company Leadership Growing Company Leadership ChallengesChallenges

Today’s business leaders face a great number of Today’s business leaders face a great number of challenges on a daily basis:challenges on a daily basis: Managing Co-Founder and Shareholder RelationshipsManaging Co-Founder and Shareholder Relationships Building A Performance-Driven Culture (Internal/External)Building A Performance-Driven Culture (Internal/External) Managing A Changing WorkforceManaging A Changing Workforce Understanding Sarbanes-OxleyUnderstanding Sarbanes-Oxley Managing Relationships With Key Professional Services Managing Relationships With Key Professional Services

ProvidersProviders Many moreMany more

By establishing an effective board of advisors, senior By establishing an effective board of advisors, senior management opens itself to new ideas and to the management opens itself to new ideas and to the experience of experts in a variety of fields related to experience of experts in a variety of fields related to their core business practices, target markets, and their core business practices, target markets, and other important areasother important areas

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What Is An Advisory Board?What Is An Advisory Board? What are they?What are they?

An Advisory Board can also be an excellent way to get a An Advisory Board can also be an excellent way to get a second opinion on certain matters without interrupting second opinion on certain matters without interrupting existing relationshipsexisting relationships

Much more informal with regard to the number of meetings Much more informal with regard to the number of meetings and agendas for meetingsand agendas for meetings

Can be assembled for general purposes or a series of Can be assembled for general purposes or a series of Advisory Boards could be set up for very specific purposesAdvisory Boards could be set up for very specific purposes

Technical reviewTechnical review Marketing strategyMarketing strategy Recruitment and compensationRecruitment and compensation Research and development. Research and development.

What are they not?What are they not? Not required by state corporate lawsNot required by state corporate laws Does not owe the same levels of fiduciary duties to the Does not owe the same levels of fiduciary duties to the

shareholdersshareholders Hence cannot generally be held as responsible for their acts or Hence cannot generally be held as responsible for their acts or

recommendationsrecommendations

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What Is An Advisory Board? What Is An Advisory Board? Cont’d.Cont’d.

An Advisory Board is a powerful management tool that An Advisory Board is a powerful management tool that no small business should be withoutno small business should be without No business is too small to benefit from having an Advisory No business is too small to benefit from having an Advisory

BoardBoard Implement a formalized process to meet with other Implement a formalized process to meet with other

experienced business leaders and facilitate an open discussion, experienced business leaders and facilitate an open discussion, sharing ideas and concernssharing ideas and concerns

An Advisory Board is composed of people with a An Advisory Board is composed of people with a genuine interest in your business and a desire to see it genuine interest in your business and a desire to see it do welldo well Think of an Advisory Board as a management think tankThink of an Advisory Board as a management think tank Advisory Board members serve as a sounding board, a source Advisory Board members serve as a sounding board, a source

of ideas and expertise - and give you honest adviceof ideas and expertise - and give you honest advice As fewer and fewer individuals find themselves willing As fewer and fewer individuals find themselves willing

to take on the fiduciary responsibility of being a to take on the fiduciary responsibility of being a corporate director, advisory boards are a good way to corporate director, advisory boards are a good way to tap otherwise out-of-reach experience and expertisetap otherwise out-of-reach experience and expertise

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What Is An Advisory Board? What Is An Advisory Board? Cont’d.Cont’d.

Who should you target as advisory board members?Who should you target as advisory board members? Recently retired executives and managersRecently retired executives and managers Other experienced business people, customers or vendorsOther experienced business people, customers or vendors Individuals of diverse personal and professional backgrounds Individuals of diverse personal and professional backgrounds

and ideas and ideas Choose people you admire that you think you will be able to Choose people you admire that you think you will be able to

develop a relationship of trust withdevelop a relationship of trust with How big should an Advisory Board be?How big should an Advisory Board be?

The board might range from two people to as many as eight The board might range from two people to as many as eight or ten, but remember there are always logistical challenges or ten, but remember there are always logistical challenges with larger groupswith larger groups

Consider creating topic specific advisory boards with two or Consider creating topic specific advisory boards with two or three advisorsthree advisors

Tech advisoryTech advisory Human Capital advisoryHuman Capital advisory Governance advisoryGovernance advisory Other operational areasOther operational areas

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What Is An Advisory Board? What Is An Advisory Board? Cont’d.Cont’d.

Expectations for an Advisory BoardExpectations for an Advisory Board Meetings should be formalized and take place, Meetings should be formalized and take place,

usually on a quarterly basisusually on a quarterly basis Advisory Compensation is an issue to considerAdvisory Compensation is an issue to consider

Monetary compensation may be expected though it is Monetary compensation may be expected though it is typically a token amount – do not expect your per typically a token amount – do not expect your per meeting payment to be the lure for serving on your boardmeeting payment to be the lure for serving on your board

Identify other benefits to your Advisory Board members – Identify other benefits to your Advisory Board members – ask them what draws their attention to serving and you ask them what draws their attention to serving and you might be surprisedmight be surprised

Giving back to the entrepreneurial communityGiving back to the entrepreneurial community Unique and unusual tangible tokens of esteem from the Unique and unusual tangible tokens of esteem from the

companycompany The chance to meet and spend time with other like-minded The chance to meet and spend time with other like-minded

and highly experienced individuals in a high-level creative and highly experienced individuals in a high-level creative atmosphereatmosphere

Other intangible benefitsOther intangible benefits

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What Is An Advisory Board? What Is An Advisory Board? Cont’d.Cont’d.

Expectations ContinuedExpectations Continued Be prepared for each meeting of your Be prepared for each meeting of your

Advisory BoardAdvisory Board Prepare and distribute a meeting agenda Prepare and distribute a meeting agenda

ahead of time and include any related ahead of time and include any related materialsmaterials

Be prepared to be completely open and Be prepared to be completely open and frank with your Advisory Board, sharing frank with your Advisory Board, sharing both your hopes and your fearsboth your hopes and your fears

They won't be able to advise you properly or well They won't be able to advise you properly or well if you hold back.if you hold back.

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Key Issues In EstablishingKey Issues In EstablishingAdvisory BoardsAdvisory Boards

Scope and Charter of the Advisory Scope and Charter of the Advisory BoardBoard

Compensation and ReimbursementsCompensation and Reimbursements

ConfidentialityConfidentiality

Assignments of InventionsAssignments of Inventions

No Conflicting Employment: No No Conflicting Employment: No Conflicting ObligationsConflicting Obligations

Defined Advisory Board Term LimitsDefined Advisory Board Term Limits

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Scope & CharterScope & Charter

Rules governing the Board of Advisors are not Rules governing the Board of Advisors are not set forth in a corporate law statuteset forth in a corporate law statute Be very clear as to your expectations of each Advisory Be very clear as to your expectations of each Advisory

Board member as well as to how they will be Board member as well as to how they will be compensated for their effortscompensated for their efforts

Prepare an Advisory Board Member AgreementPrepare an Advisory Board Member Agreement The best way to capture and establish objectives and The best way to capture and establish objectives and

rewardsrewards It should lay out your expectations for meeting It should lay out your expectations for meeting

frequency, attendance policy, agenda structure, frequency, attendance policy, agenda structure, compensation, confidentiality or non-disclosure, etc.compensation, confidentiality or non-disclosure, etc.

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Scope & CharterScope & Charter Remember the differences between a Board of Remember the differences between a Board of

Advisors and a Board of Directors Advisors and a Board of Directors Advisors – management retains the ability to accept Advisors – management retains the ability to accept

or ignore the recommendations of any Advisory or ignore the recommendations of any Advisory BoardBoard

Directors – management has a responsibility to Directors – management has a responsibility to shareholders and does not have the luxury of shareholders and does not have the luxury of ignoring a mandate from the Board of Directors ignoring a mandate from the Board of Directors

Members of the Advisory Board do not owe the same Members of the Advisory Board do not owe the same duties to the company and its shareholdersduties to the company and its shareholders

They can be used to mediate disputes by and among They can be used to mediate disputes by and among the officers and/or between officers and directors the officers and/or between officers and directors

They can also be used in identifying potential board of They can also be used in identifying potential board of director candidates or be a recruiting ground for director candidates or be a recruiting ground for eventual seats on the boardeventual seats on the board

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Compensation & Compensation & ReimbursementsReimbursements

In the early stages of the company’s In the early stages of the company’s development, the rewards to Advisory Board development, the rewards to Advisory Board members should be structured to:members should be structured to: Encourage a long-term commitmentEncourage a long-term commitment Provide for being a proactive, not merely a Provide for being a proactive, not merely a

reactive, contributor to the company’s growth reactive, contributor to the company’s growth plans.plans.

Monetary compensation may be expected, Monetary compensation may be expected, though it is typically a token amountthough it is typically a token amount Do not expect your monetary payment to be Do not expect your monetary payment to be

the true lure for experienced, well-the true lure for experienced, well-compensated executives to serve on your boardcompensated executives to serve on your board

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Compensation & Compensation & ReimbursementsReimbursements

Identify other benefits to your Advisory Board Identify other benefits to your Advisory Board members – ask them what attracts their interest members – ask them what attracts their interest in serving (you might be surprised)in serving (you might be surprised) Giving back to the entrepreneurial community & Giving back to the entrepreneurial community &

the ability to mentor young, growing companiesthe ability to mentor young, growing companies Unique and unusual tangible tokens of esteem Unique and unusual tangible tokens of esteem

from the company, indicating you value their from the company, indicating you value their input (from product, to corporate logo engraved input (from product, to corporate logo engraved items, and more)items, and more)

The chance to meet and spend time with other The chance to meet and spend time with other like-minded and highly experienced individuals in like-minded and highly experienced individuals in a high-level creative atmospherea high-level creative atmosphere

Other intangible benefitsOther intangible benefits

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Legal Agreements: Legal Agreements: Confidentiality & InventionsConfidentiality & Inventions

ConfidentialityConfidentiality Advisors should be willing to sign a confidentiality or Advisors should be willing to sign a confidentiality or

non-disclosure agreementnon-disclosure agreement Invest time and resources in developing a strong Invest time and resources in developing a strong

confidentiality agreementconfidentiality agreement Do not expect advisors to sign a non-competeDo not expect advisors to sign a non-compete

Be open and honest with your Advisory BoardBe open and honest with your Advisory Board Advisors can not assist you to the best of their ability if Advisors can not assist you to the best of their ability if

there is not full disclosure on the company’s performancethere is not full disclosure on the company’s performance Assignment of InventionsAssignment of Inventions

Like the confidentiality agreement, prepare a similar Like the confidentiality agreement, prepare a similar legal document related to the assignment of inventionslegal document related to the assignment of inventions

The agreement should cover any inventions which relate, The agreement should cover any inventions which relate, directly or indirectly, to the business of the company and directly or indirectly, to the business of the company and arise out of the status of being advisor to the company or arise out of the status of being advisor to the company or through a situation of “work for hire” as a compensated through a situation of “work for hire” as a compensated advisory to the companyadvisory to the company

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Conflicting Employment/ Conflicting Employment/ ObligationsObligations

Due diligence is a cornerstone to the strong foundation of Due diligence is a cornerstone to the strong foundation of trust and mutual respect between a manager and an advisortrust and mutual respect between a manager and an advisor Consult closely with a potential advisor to determine if there Consult closely with a potential advisor to determine if there

are any outstanding employment or other obligations that are any outstanding employment or other obligations that could infringe on their membership in an advisory capacitycould infringe on their membership in an advisory capacity

Construct an agreement that covers any conflicting Construct an agreement that covers any conflicting relationships they may have:relationships they may have:

That they are not bound by any agreement or any other previous That they are not bound by any agreement or any other previous or existing business relationship which conflicts with or prevents or existing business relationship which conflicts with or prevents them from acting as an advisorthem from acting as an advisor

That they will not improperly use or disclose any proprietary That they will not improperly use or disclose any proprietary information or trade secrets of any former or concurrent information or trade secrets of any former or concurrent employer, or any other person or entity with whom they have an employer, or any other person or entity with whom they have an agreement or to whom they owe a duty to keep such information agreement or to whom they owe a duty to keep such information in confidencein confidence

That they will not directly or indirectly recruit, solicit or hire any That they will not directly or indirectly recruit, solicit or hire any employee of the Company, or induce or attempt to induce any employee of the Company, or induce or attempt to induce any employee of the Company to discontinue his or her employment employee of the Company to discontinue his or her employment relationship with the Company. relationship with the Company.

That they will notify the company of any change in employment That they will notify the company of any change in employment status as it may effect their status as an advisor to the company status as it may effect their status as an advisor to the company

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Advisory Board Term Advisory Board Term LimitsLimits

Advisory Boards are vital for both established and Advisory Boards are vital for both established and growing companies but as the corporate landscape growing companies but as the corporate landscape changes, so must the make-up and scope of your changes, so must the make-up and scope of your Advisory BoardAdvisory Board

Term Limits are a convenient and formalized way to Term Limits are a convenient and formalized way to refresh the boardrefresh the board Move away from less relevant experience and adviceMove away from less relevant experience and advice Include new ideas and expertise targeted to the Include new ideas and expertise targeted to the

advancement of your business model, systems and advancement of your business model, systems and processesprocesses

Include some discussion and a great deal of thought Include some discussion and a great deal of thought in developing your approach to this optional, but in developing your approach to this optional, but recommended, addition to the structure of the recommended, addition to the structure of the Advisory Board Agreement Advisory Board Agreement

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Andrew J. ShermanAndrew J. ShermanChief Educational Officer Chief Educational Officer Grow Fast Grow Right Grow Fast Grow Right Enterprises, LLCEnterprises, LLC

International authority and educator on business growth strategiesInternational authority and educator on business growth strategies Named by Inc. Magazine in February 2006 as one of the 19 Named by Inc. Magazine in February 2006 as one of the 19

Champions of Entrepreneurship and Small Business in the Nation and Champions of Entrepreneurship and Small Business in the Nation and more recently by SmartCEO Magazine as one of Washington, DC’s more recently by SmartCEO Magazine as one of Washington, DC’s Legal EliteLegal Elite

Recognized as one of Fortune Magazine’s Top 10 Minds in Small Recognized as one of Fortune Magazine’s Top 10 Minds in Small BusinessBusiness

Advisor to Fortune 500 & emerging growth stage companies in Advisor to Fortune 500 & emerging growth stage companies in business planning, franchising, M&A, joint venture and strategic business planning, franchising, M&A, joint venture and strategic alliancesalliances

Expertise in design/analysis of key distribution channel development Expertise in design/analysis of key distribution channel development & synergistic business relationships& synergistic business relationships

Author of 14 books on legal & strategic aspects of business growthAuthor of 14 books on legal & strategic aspects of business growth Top-rated Adjunct Professor in prestigious MBA programs at Top-rated Adjunct Professor in prestigious MBA programs at

University of Maryland & Georgetown UniversityUniversity of Maryland & Georgetown University Regularly interviewed and quoted as an authority on legal and Regularly interviewed and quoted as an authority on legal and

strategic business issues by top tier print & broadcast media such as strategic business issues by top tier print & broadcast media such as CNN, Bloomberg, AOL Small Business, Forbes and Business Week CNN, Bloomberg, AOL Small Business, Forbes and Business Week

Has addressed many widely recognized business/trade groups as a Has addressed many widely recognized business/trade groups as a keynote or featured speaker around the worldkeynote or featured speaker around the world

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Contact InformationContact Information

Grow Fast Grow Right Grow Fast Grow Right Enterprises, LLCEnterprises, LLC

One Research Court, Suite 450One Research Court, Suite 450Rockville, Maryland 20850Rockville, Maryland 20850United States of AmericaUnited States of America

1-866-GRO-RITE (476-7483) main1-866-GRO-RITE (476-7483) main(301) 564-0380 fax(301) 564-0380 fax

info@growfastgrowright.cominfo@growfastgrowright.comwww.growfastgrowright.comwww.growfastgrowright.com