The Hidden Power of Advisory Boards: Unlocking Success for Chairmen and CEOs

Board Effectiveness and Board Excellence, CEO Excellence and CEO Performance

November 2024

In a time of unprecedented change, chairmen and CEOs face complex challenges that require swift action and strategic foresight. Fundamental macroeconomic, geopolitical, technological, and societal developments increase the pressure on chairmen and CEOs, while conflicting stakeholder interests complicate decision-making. Emerging trends can affect the future of entire industries, and expectations for transparency and sustainability continue to rise.

Against this backdrop, more than half of the Fortune 100 companies have now established an advisory board to the chairman or CEO. Independent advice, fresh perspectives, and networks outside formal and institutionalized bodies are becoming increasingly important to address these growing challenges.

To successfully navigate this dynamic environment and maximize company performance, advisory boards are gaining importance as independent advisory bodies for chairmen and CEOs. But what are their specific benefits, and how can companies successfully establish them to gain a real competitive advantage?

Advisory Boards: Key Drivers of Success for Chairmen and CEOs

The Role of Advisory Boards in Modern Organizations

The history of modern advisory boards began in the United States in the early 20th century. The “Advisory Board for the Monetary Commission” gave rise to the Federal Reserve System, a milestone in the country’s economic development¹. U.S. presidents such as Woodrow Wilson and Franklin D. Roosevelt used temporary advisory councils to address complex economic and social challenges during the world wars². In 1946, President Harry S. Truman created the first permanent advisory body, the Council of Economic Advisers, which has served every U.S. president since as an objective authority on economic policy³.

The concept quickly gained worldwide recognition. In 1996, Toyota set up an advisory board alongside its high-profile Board of Directors to discuss trends in politics, technology, and society, and to open up new markets⁴. Business leaders and politicians alike have embraced the concept of advisory boards. During her tenure, Angela Merkel established new political advisory boards to bring expert knowledge into the decision-making process. Investors such as Warren Buffett and private equity firms use advisory boards to help manage their portfolio companies⁵. Technology companies such as Google, under Eric Schmidt’s leadership, have adapted the successful model to remain agile in a rapidly changing market environment and to improve the resilience of Chairmen and CEOs.

Chairmen and CEO advisory boards are on the rise in Australia, the U.S., and Asia. A growing number of high-profile companies, including General Electric, American Express, Microsoft, Google, PepsiCo, and JPMorgan, are relying on them to ensure long-term value creation and improve company performance. Advisory boards are not only an integral part of good corporate governance, but they are also critical for sustainable growth. Research shows that between 2010 and 2022, companies with an advisory board for Chairmen or CEOs achieved a 9% higher total shareholder return than companies without one⁶.

The Benefits of a Dedicated Advisory Board for Chairmen and CEOs

In our experience, the benefits of advisory boards fall into the following main categories:

Bringing in new perspectives and filling gaps in expertise:
Advisory board members bring valuable perspectives as experts in areas that are not part of the company’s core business. They enhance decision-making and provide expertise to fill critical gaps on the Board of Directors. This is especially true in areas such as geopolitics, technology, and sustainability. Advisory boards create a learning forum for Chairmen, CEOs, non-executive directors, and executive management, supporting their continuous development.
Strengthening the company’s brand and enabling market entry:
Advisory board members leverage their expertise to prepare Chairmen, CEOs, and executive management for regional and cultural challenges. Their networks engage key players and stakeholders, adding credibility to the company. In some cases, advisory boards can replace traditional brand ambassadors to position the brand globally.
Providing independent advice on tough challenges:
Advisory board members, unburdened by the responsibilities of non-executive directors, can offer honest and unbiased perspectives. This independence allows them to provide Chairmen and CEOs with valuable second opinions on critical decisions, helping to avoid costly mistakes. The informal nature of advisory boards fosters open discussion of difficult issues that the Board of Directors may be reluctant to address.
Board succession:
While not a primary goal, advisory boards can serve as a testing ground for identifying individuals with the potential to contribute to broader strategic discussions and enhance the decision-making processes of the Board of Directors.
Cost-effectiveness:
Advisory boards are often smaller and more cost-effective than Boards of Directors. Members typically receive one-third the compensation of non-executive directors. This makes advisory boards a financially efficient alternative to hiring consultants or senior advisors.

Key Principles for Building and Improving the Performance of an Advisory Board

Chairmen and CEOs can access external expertise in various ways. While peer networking groups offer invaluable insights, their contributions are often intermittent and not tailored to the specific challenges and needs of the organization. Consultants typically provide expertise on a project-by-project basis, offering tactical guidance to solve specific problems, but often lack a broader strategic perspective. Boards of Directors, meanwhile, have legal and formal responsibilities to make decisions and oversee management. However, they are frequently constrained by legal and internal rules and can quickly become entangled in conflicts of interest.

In contrast, advisory boards provide long-term strategic perspectives and ongoing support. Acting as an independent advisory body in the decision-making process, their recommendations are non-binding. This independence allows for unbiased insights and encourages open discussions on challenging issues that Boards of Directors may avoid addressing.

Almost every company today relies on informal networks to gain new perspectives, improve decision-making, or facilitate market access. However, formalizing such a network into an advisory board offers distinct advantages. Not only does it ensure that advice is independent and represents a collective perspective, but it also defines responsibilities and accountability. A formal advisory board fosters discipline, enhances the quality of ideas and recommendations, and provides context through diverse perspectives. It also promotes broader acceptance of decisions – a critical factor for Chairmen and CEOs managing multiple stakeholders’ interests effectively.
In our experience, the following key principles contribute to the success of advisory boards:

Purpose, Goals, and Governance:
A strong advisory board for the Chairman or CEO requires the full support of the Board of Directors. Involving non-executive directors early in the process helps clarify the advisory board’s purpose, role, and access, fostering buy-in and minimizing conflicts. Regular participation of non-executive directors in advisory board meetings for specific topics can significantly enhance effectiveness and strengthen relationships between the advisory board, the Board of Directors, and the Chairmen or CEO.

The first step in establishing an advisory board is to clearly define its purpose and structure. The corporate strategic agenda should guide its formation, aligning the advisory board’s work with the company’s roadmap and key objectives. The advisory board’s role must be well-defined – whether as a sparring partner in decision-making, a source of fresh perspectives, a panel of experts on specific issues, or a network to facilitate market access.

Advisory boards should focus on the unique challenges and opportunities the company faces, such as transformation, market access, customer centricity, growth, or culture. A clear definition of priorities ensures the advisory board addresses the most critical issues for the Chairmen or CEO and fully realizes its potential.

Define Success:
A clear mandate for the advisory board should be established from the outset. This involves setting precise goals – both quantitative and qualitative – defining expectations, and regularly evaluating progress. Proven practices include setting milestones, using KPIs to measure outcomes, holding advisory board members accountable, and replacing members as needed.

Clear communication of success criteria ensures that advisory board members remain focused and aligned with expectations from the start. This approach helps advisory boards deliver effective recommendations, achieve measurable results, and maintain positive momentum.

Sponsorship and Governance:
The advisory board should be sponsored by the Chairmen or CEO, with a thorough assessment of the governance structure to determine how the board will integrate into the organization. The sponsor’s personal commitment is critical to ensure that the advisory board remains focused, drives the agenda, and participates actively in meetings.

It is essential to define who within the company will have access to the advisory board and how that access will be managed. This selection should align with the company’s challenges and strategic priorities, as it directly influences the board’s focus. Establishing clear rules for access to advisory board meetings, discussions, and reports ensures effective communication and implementation of recommendations.

Regular and open communication channels between the advisory board, the Board of Directors, and executive management are crucial. These channels can include formal meetings, informal updates, joint workshops, or issue-specific working groups. Close collaboration across these entities promotes a shared understanding of the company’s strategic priorities and operational challenges, enhancing overall performance.

Focus on Composition: Who Makes a Successful Advisory Board?
The number of advisory board members varies from company to company, but our experience shows that a minimum of five and a maximum of twelve members is most effective. Starting with five members and focusing on one or two key areas, then gradually expanding the membership and scope, has proven to be a successful approach. The composition of the advisory board is one of the most critical factors for its success. It should always align with the advisory board’s purpose, role, key issues, and expected outcomes.

Diversity and Expertise:
Research consistently demonstrates that diverse perspectives on an advisory board significantly enhance the quality of discussions and recommendations. For advisory boards providing strategic advice to Chairmen or CEOs, we recommend appointing members who bring diversity in terms of region, gender, expertise, and experience. Potential candidates can come from a range of fields, including business, academia, and politics. Suitable profiles include:

Chairmen and CEOs with a proven track record
Politicians with policy-making experience
Academics, such as deans or thought leaders
Financial experts, including economists and former central bankers
Financial investors, founders, or former management consultants

The key is to ensure a broad spectrum of expertise and perspectives tailored to the company’s strategic needs.

A structured selection process is essential for building an effective advisory board. Establish clear guidelines aligned with your governance policies to ensure transparency and accountability. Avoid conflicts of interest by steering clear of candidates with dependencies or partnerships that may compromise their independence. Select individuals driven by a genuine conviction to add value and contribute objectively to the advisory board’s goals.

Flexibility:
As your company’s challenges and opportunities evolve, so too should the composition of your advisory board. Regularly review the advisory board’s structure and membership to ensure it continues to align with your strategic objectives. This adaptability ensures that the advisory board remains a relevant and valuable asset in addressing the dynamic needs of your organization.

Optimize Performance: How Working Practices, Collaboration, and Feedback Shape Advisory Board Performance
In our experience, advisory boards perform best when they follow disciplined and formal working practices, guided by clear guidelines similar to those of a Board of Directors. Establishing a robust framework is critical, encompassing the size of the advisory board, the frequency and timing of meetings, access to information, and a structured agenda for each meeting. To maintain long-term effectiveness, we recommend regular—preferably annual—performance evaluations and the induction of new members to bring fresh perspectives.

Structured Working Practices
A clear framework for advisory board operations is essential. This includes:

Size and composition: Define the optimal number of members based on the board’s focus and strategic priorities.
Meeting frequency and format: Hold four meetings annually, preferably in person, rotating between key cities in the markets where the company operates.
Clear agendas: Each meeting should have a defined agenda to ensure discussions remain focused and productive.
Information access: Provide materials well in advance to ensure members are fully prepared and aligned before discussions

Feedback and Continuous Improvement:
Regular feedback is crucial for optimizing the performance of advisory boards. A continuous feedback loop – where both the advisory board and the Chairmen or CEO provide and receive feedback – creates an iterative process that enhances collaboration and ensures contributions remain relevant and impactful. To further boost adviosry board effectiveness:

Performance reviews: Conduct annual evaluations to assess individual and collective performance.
Membership turnover: Refresh the board regularly by rotating members and replacing those who no longer contribute meaningfully.

Maximizing Meeting Impact
The effectiveness of advisory board meetings is directly linked to their structure and preparation. To maximize value:

Distribute meeting materials and the agenda well in advance, allowing members time to prepare.
Incorporate a social component into meetings to foster open, informal discussions and allow members to share ideas freely.

Encouraging Networking and Broader Perspectives
To enrich the advisory board experience, include activities that encourage networking and knowledge-sharing:

Organize joint sessions with the advisory boards of other companies or organizations.
Invite guest speakers from political, social, or cultural spheres to discuss relevant issues and broaden the board’s perspective.

This balance of structured meetings, social interaction, and exposure to diverse viewpoints ensures that the advisory board remains engaged, innovative, and aligned with the company’s strategic goals.

Why Advisory Boards Fail

Despite their widespread adoption, advisory boards often have a high failure rate. This is primarily due to underestimating their importance and failing to seek external expertise in their establishment. To avoid advisory boards falling victim to the halo effect—being seen as a trend rather than a value-adding entity—it is essential to address the most common pitfalls:

Lack of Chairmen or CEO Commitment and Support:
Without active engagement and endorsement from the Chairman or CEO, the advisory board’s impact is significantly diminished.
Conflicts of Interest Among Advisory Board Members:
- Members may sit on the board of a competitor or partner, creating potential conflicts.
- Chairmen or CEOs may face conflicts when serving on the boards of advisory board members.
Conflicts with the Board of Directors Due to Poor Communication or Involvement:
- Recommendations from the advisory board may clash with the direction of the Board of Directors. Rather than causing friction, these differences should be used as an opportunity to harmonize strategies and foster constructive discussions.
Lack of Alignment Between Purpose, Objectives, and Composition:
An advisory board’s success hinges on clear alignment between its goals, organizational structure, and member selection.
Unbalanced Team in Terms of Skills, Size, and Commitment:
A poorly composed team can hinder the advisory board’s effectiveness, especially if it lacks the necessary expertise or commitment from its members.
Lack of Diversity:
Homogeneity in expertise, experience, functional skills, age, gender, or ethnicity limits the range of perspectives and ideas, reducing the board’s value.
Inappropriate Member Selection:
Selecting individuals unsuited to the role, organization, or collaborative dynamics undermines the advisory board’s effectiveness.
Unclear Mandate and Role in Decision-Making:
Without clarity on the advisory board’s mandate and its influence on decisions, expectations and contributions often fall short.
Failure to Reflect on Functioning, Culture, and Collaboration:
Many advisory boards are established without discussions on critical issues like culture, collaborative models, and working practices. This oversight can lead to frustration and inefficiency.
Lack of Regular Evaluation and Adaptation:
Failure to review the advisory board’s composition and performance regularly prevents the team from evolving to meet new challenges. Regular evaluations ensure underperforming members are replaced and the team remains high-performing.

Experiences and Lessons Learned: How Advisory Boards Help Companies Move Forward

Advisory boards offer non-binding strategic advice, valuable insights, and access to markets. Their ability to create tangible value has elevated advisory boards to a global standard for value creation, good corporate governance, and effective leadership. Chairmen and CEOs across a wide range of industries have successfully utilized advisory boards to address complex challenges and seize new opportunities. In our experience, the orientation of an advisory board should always reflect the unique situation, challenges, and goals of the company and its leadership. Tailoring the board’s composition, focus, and practices to the organization’s specific needs ensures its relevance and effectiveness.

Through our work with world-renowned organizations, we have gained deep insight into the success factors and common pitfalls of management advisory boards. Drawing on years of experience building and supporting advisory boards for Chairmen and CEOs, we have developed a comprehensive understanding of their functioning, focus, and impact. We invite you to explore these insights through practical examples that illustrate how advisory boards can help organizations navigate complexity, drive innovation, and achieve sustained success.

Intel:
Building a new business model Once a leader in the semiconductor market, Intel had lost ground to strong competitors such as TSMC and Samsung, new value chains in semiconductor manufacturing, and technological disruptions such as artificial intelligence. Under new CEO Pat Gelsinger, Intel decided to build a new business in contract semiconductor manufacturing. Accompanied by a new manufacturing strategy, a massive expansion plan in Europe and the U.S., and a significant increase in production capacity, the company planned to invest nearly $150 billion.

In response, Intel established an advisory board to ensure a stronger “outside-in” perspective for the efficient implementation of business development. The role of the advisory board was to provide fresh perspectives and support executive management decisions to ensure a strong margin structure, customer-centric focus and culture, and efficient operations and business processes. The advisory board consisted of industry experts, potential customers and academics to ensure a broad perspective.

A key success factor was the diverse composition of the advisory board, which enabled Intel to develop innovative strategies and adapt to changing market conditions. One challenge was adapting internal structures and culture to the new contract manufacturing business model. By engaging a diverse advisory board, Intel was able to successfully establish a new business model and strengthen its competitiveness in the global semiconductor market.

Toyota:
After a boom in the 1980s, Toyota’s operating profit halved between the early and mid-1990s due to market saturation and increased competition. In 1996, Toyota established an advisory board in addition to its high-profile board of directors. The advisory board consisted mainly of people from outside the auto industry and was designed to help Toyota with its global expansion strategy.

Toyota drew on political figures from various regions, including Dr. Paul Volcker, former chairman of the U.S. Federal Reserve, and the then finance minister of India, Dr. Manmohan Singh, who later became prime minister. The involvement of these influential figures gave Toyota access to key political networks and a deeper understanding of local markets.

A key success factor was the strategic selection of advisory board members, which helped Toyota overcome cultural barriers and develop market-specific strategies. The challenge was to effectively integrate the insights gained into the global corporate strategy. The advisory board played a critical role in Toyota’s successful global expansion, providing strategic insights and networks that established the company in new markets.

J.P. Morgan:
Becoming the World’s Most Valuable Bank The J.P. Morgan International Council is considered one of the most successful advisory boards in the world. Its composition of former politicians and current business leaders from around the world has been a key factor in J.P. Morgan’s rise to become the world’s most valuable bank. The advisory board assists the Chairmen and the board of directors in assessing geopolitical and geo-economic developments and in developing new markets.

The credibility of the advisory board has played a key role in ensuring that J.P. Morgan is trusted by regulators, politicians and business leaders around the world. For example, Indian Prime Minister Narendra Modi met with the advisory board to discuss India’s progress toward a $5 trillion GDP.

A key success factor has been the advisory board’s ability to anticipate global trends and make strategic recommendations. The challenge was to integrate diverse international perspectives into a coherent business strategy. The advisory board has enabled J.P. Morgan to capitalize on global opportunities and mitigate risks, contributing to the bank’s continued success.

Adobe:
Understanding Customers to Accelerate Growth After a period of rapid growth, Adobe’s executive management decided to establish an advisory board. The goal was to get closer to the customer and get direct feedback on industry-specific challenges. The advisory board was composed of experienced individuals from a variety of industries to provide a deeper understanding of customer needs.

It also provided an opportunity to discuss emerging technologies, such as artificial intelligence, and their impact with industry experts. Over the next four years, Adobe increased its growth by more than 85 percent, significantly improved its Net Promoter Score (NPS), and significantly increased its market share.

A key success factor was a better understanding of the customer, which led to improved and innovative products. The challenge was how to effectively integrate customer feedback into product development. The advisory board helped Adobe develop customer-centric strategies that have become a key growth driver.

Mercedes:
Sustainable Success through Integrity and Compliance Faced with heavy fines in the US, Mercedes CEO and management board decided to establish an Integrity and sustainability advisory board. The advisory board consists of experts in the fields of integrity, sustainability and corporate responsibility and has since become an important source of inspiration for the CEO and the management board.

Since its inception, the advisory board has addressed issues such as human rights, data stewardship, the responsible use of artificial intelligence, and the development of a sustainable business strategy. Today, it is one of the world’s most respected advisory boards on these issues.

A key factor in its success has been its consistent focus on ethical standards, which has strengthened the trust of customers and investors. The challenge was to integrate the recommendations into an existing corporate culture and to engage employees worldwide. The advisory board helped Mercedes to embed integrity and sustainability in its corporate strategy, leading to a stronger market position in the long term.

PIMCO:
Using Political Decision-Making as a Key to Market Strategy PIMCO’s Global advisory board aims to provide a deeper understanding of political actors and decisions in order to respond to them in the investment process. Composed of former finance ministers and central bank governors, the advisory board regularly discusses global developments with the Chief Investment Officer and PIMCO’s investment professionals.

The advisory board is considered an important cornerstone of PIMCO’s investment process and is the basis for PIMCO’s financial products consistently outperforming their benchmarks. By integrating political expertise, PIMCO has been able to refine its market strategies and minimize risk.

One success factor was exclusive access to political information, which provided a competitive advantage. The challenge was to interpret political developments correctly and use them strategically. The advisory board enabled PIMCO to effectively integrate political insights into investment decisions and generate superior returns.

Deutsche Bank:
From restructuring to growth strategy Following the successful restructuring of Deutsche Bank, management board shifted its focus to sustainable organic growth from 2018 to 2021. During this phase, an advisory board was established to advise PIMCO’s investment professionals on macroeconomic, geopolitical and technological developments that have a significant impact on the business environment.

Under the leadership of the former Chairman of the supervisory board, a “Global Advisory Board” was formed with leading political, business, and academic figures from the U.S. and Europe. In the following year, Deutsche Bank weathered the turmoil surrounding Credit Suisse and continued to grow globally.

One success factor was the Advisory board’s proactive identification of market opportunities and risks. The challenge was to translate the recommendations into operational measures in a timely manner. The advisory board helped Deutsche Bank to successfully manage the transition from restructuring to sustainable growth and to consolidate its market position.

The Growing Importance of Advisory Boards for Chairmen and CEOs

Advisory boards cannot replace decision-makers or non-executive directors, but they bring unique value to the table. Traditionally focused on identifying trends, providing objective perspectives, and improving decision-making, the role of advisory boards has expanded significantly. Today, they play a pivotal role in ensuring international presence, facilitating market entry, and supporting expansion strategies. Their networks with key stakeholders make them increasingly indispensable for Chairmen and CEOs navigating complex business landscapes.

Integrating external expertise through an advisory board is a critical driver of long-term value creation, enhanced company performance, and sustainable growth. Advisory boards empower Chairmen and CEOs to foster an environment of continuous learning and development while strengthening organizational resilience.

We strongly recommend the establishment of well-structured advisory boards and offer our support through our experienced consultants in our Resilience & Development and Learning Practice. By collaborating with the world’s leading academic institutions, we ensure that Chairmen, CEOs, and boards are equipped with the insights and tools needed to achieve lasting success.