Is an Advisory Board Necessary for the Professionalization of Your Company?

As a company grows and management becomes less synonymous with the founder, the question of how to incorporate external perspectives and discipline into the decision-making process arises almost naturally. In this scenario, an advisory board often appears as the first answer. Before adopting it, however, it's worth understanding what it is, what it isn't, and at what stage it truly adds value.

Legal Nature and Differences of the Board of Directors

This is a non-statutory and advisory body, which differs from the board of directors regulated by Law 6.404/76 in articles 138 et seq., precisely because it does not deliberate or bind the administration. As long as it is maintained as a non-statutory body, without decision-making power and without assuming management functions, its members are not subject to the legal regime applicable to company administrators. Its members advise, while the decision and responsibility remain with the shareholders and the administration.

This characteristic is simultaneously its greatest advantage and its limitation. The advantage lies in its flexibility, because the company brings in experienced advisors, establishes a routine of meetings, submits numbers and strategy to the scrutiny of third parties, and creates... accountability without having to immediately assume the structure and costs of a statutory body. On the other hand, the limitation exists precisely because the advisory board does not replace the administration nor does it resolve corporate conflicts on its own.

Strategic Structuring and Transition Function

The value it delivers depends much less on its formal existence than on its design, and a board without regulations, without an agenda, without a defined periodicity, without composition criteria, without confidentiality rules and, where applicable, without remuneration, tends to quickly become ineffective. However, when well-structured, it fulfills a relevant transitional function, preparing the company and the business family for the formal governance that will come with the entry of investors, the professionalization of management, or a possible initial public offering (IPO).

There are situations, it is true, where adopting it would be premature, especially in small companies with still centralized management and low complexity, where the effort of maintaining the body ends up outweighing the benefit. The criterion that really matters is not the desire to appear mature, but rather the existence of real complexity to be addressed, such as multiple partners, ongoing succession, expansion, fundraising, or conflicts that require qualified mediation.

The advisory board is, therefore, a transitional tool, not an obligation or a status symbol, so that, when designed with discipline and installed at the right time, it accelerates professionalization and reduces governance risks. M&M assists both in assessing relevance and in structuring the bylaws and in coordinating between the advisory board and the other bodies of the company.

Article prepared by: Antonio Mazzucco, Marina Moreno and Paula Suraci.