Advisors have existed since the dawn of civilization, providing insight and expertise to the likes of kings, queens, emperors, presidents, and more. Some of the most famous advisors in history are Marcus Agrippa, a political advisor of Octavian, the man who established the Roman Empire and became Emperor Augustus; Niccolò Machiavelli, who provided military and diplomatic counsel for the Florentine Republic; and the infamous Rasputin, who spiritually advised Tsar Nicholas II of Russia. Over time, the concept of trusted advisors that helped steer the direction of nations bled into the business world. At community financial institutions (CFIs), advisory boards are becoming more commonplace. Unlike internal corporate boards, which have a fiduciary duty to govern the institution in a safe and sound manner and make governance decisions, advisory boards are comprised of external experts in the community. These boards seek to provide an outside objective perspective on how to navigate business challenges, as well as keep the pulse on the needs and interests of the local community. More CFIs are choosing to establish these advisory boards to increase their community presence, solicit feedback, and develop business connections.Benefits of a Community Advisory BoardYour CFI stands to gain a number of benefits by forming an advisory board to strengthen ties with your community. Many of those benefits come from the strengths that each individual member brings to the table, such as the following:
- Industry insight. Advisory board members can help you identify opportunities and develop strategies by assessing industry trends, consumer sentiment, and market dynamics. Central Bank & Trust in Lexington, Kentucky, takes this a step further by recruiting customers in key markets to its advisory boards, some of which go on to become directors. “It’s a business feeder,” says Luther Deaton Jr., Central Bank and Trust’s chairman, president, and CEO.
- Risk evaluation. Advisory boards can evaluate the health of your operating model and financials to identify where improvements can be made and what challenges may need to be addressed to reduce risk.
- Community connections. Most importantly, they bring strong community ties that provide excellent networking opportunities, allowing you to leverage those connections to bring in new business. Potomac Bank in Charles Town, West Virginia institutes one-year terms with a three-term max, yet they still invite former board members to events to keep the connections alive. “It’s still good to have them as liaisons for us, even if they aren’t directly connected with that board,” says Aaron Howell, Potomac Bank’s community president.
Creation and Recruitment of an Advisory BoardIn order to formally establish an advisory board, ask yourself the following questions:
- What is the purpose of your board?
- What objectives do you want them to focus on?
- What expertise do you need represented on your board?
- How many board members do you need?
- What roles, responsibilities, and expectations do you require from your board members?
- How often do you want the board to meet?
When you have a charter drafted that answers these questions, selection and recruitment can begin. To aid the selection process, a well-rounded advisory board would consist of members who check off one or more of the following boxes, depending on your CFI’s needs:
- Industry leaders. Those in your community who have deep knowledge of industry verticals can inform your strategy to cater to those industries. This is particularly helpful if you have a specialty or niche market that you cater to.
- Subject matter experts. Individuals with deep expertise in specific disciplines, such as technology or marketing, can provide strategic insight and guidance on key initiatives and emerging trends.
- Entrepreneurs. Local entrepreneurs can bring both community connections and business insights that can help you expand your regional footprint, improve internal management, and more.
- Field professionals. Practitioners from functional areas such as human resources, legal, and finance who bring hands-on experience to strengthen governance, risk management, and internal operations.
Advisory Board ManagementManaging an advisory board is more straightforward if the board’s charter outlines clear, explicit guidelines that outline member requirements and establish practices that keep the board healthy and productive. One Community Bank in Wisconsin requires its board members to agree and comply with certain regulatory policies and sign conflict of interest and non-disclosure agreements. Their members are expected to regularly attend meetings and be actively engaged with their roles. Although One Community Bank makes it clear that board members do not have to be bank customers if they are selected to serve on the board, some financial institutions may require it so their members have a better understanding of their business. Key practices for ongoing management include establishing the following:
- A strong organizational system to stay on target with goal accomplishment
- Communication preferences and frequency requirements
- Operational efficiencies such as clear meeting agendas, administrative support, written records, and regular evaluations to ensure that the board is meeting your CFI’s objectives
Advisory boards are your CFI’s direct tie to the communities you serve. Creating one can help your financial institution expand its community influence, grow and improve its own business model, and enhance its standing as a leader in your CFI’s chosen markets.
