BDC found SMEs with advisory boards perform better in terms of sales, productivity and profitability than those without them.
Much has been written about corporate governance in public companies, however there has been very little research undertaken into the best governance structures for privately-owned small and medium-sized enterprises – the engine room of the nation. One school of thought is that a traditional governance board of directors is too formal and that advisory boards are better suited to their needs.
However, other than guides on how to set-up informal advisory boards, there has been little study undertaken into best practice advisory boards and their long-term impact on small and medium-sized business success.
The Business Development Bank of Canada (BDC) undertook the first ever study on the use of advisory boards by small and medium-sized enterprises in that country. The findings were compelling, concluding “SMEs with advisory boards perform better in terms of sales, productivity and profitability than those without them”.
The key findings of their study were:
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Only 6% of SME’s have access to advisory boards – most had been in business for 11-20 years and had 20 or more employees
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The main reason businesses set up advisory boards is a “desire for complementary expertise, and the need for advice and support in decision making”
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86% of leaders believe that having an advisory board has had a significant impact on the success of their business
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Most often cited was the impact on company vision, innovation, risk management and profitability
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Sales growth was stronger after instituting an advisory board. In the first three years after an advisory board was set up, sales grew 66.8% compared with a growth of 22.9% in the three previous years
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Productivity growth also strengthened after the advisory board was introduced. In the three years after the advisory board was set up, productivity rose an average of 5.9% compared with 3.2% in t the previous three-year period.
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Annual sales of businesses with an advisory board were 24% higher than those of the control group during the period 2001-20111
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Productivity was 18% higher on average for the group of businesses with advisory boards.
BDC reported that 80% of business leaders with advisory boards say that if they had to do it again, they would set up another advisory board.
You can download the full BDC Study – Advisory Boards: An untapped resource for businesses
If you would like to participate in the first longitudinal study of advisory boards and SMEs in Australia and New Zealand, you can complete the Advisory Board Centre Survey