As a business owner, one of the most important investments you can make to ensure success is in people. Beyond employees, business owners must also rely on their boards of directors and advisory boards for strategic help and input on key business decisions.

Advisory boards and boards of directors are beneficial for company executives and board members alike.

"Being on a board is like experiencing best practices every day," says Linda Goodspeed, who sits on multiple boards and did so when she was CIO at ServiceMaster, Nissan and Lennox International. Goodspeed finds so much value in serving on boards that she made it a condition in her CIO employment terms that she could do board work.

Creating a board of directors and/or an advisory board is about investing in the future of your business. But in order to make it work for you, it's important to understand the goals and functions of the different board types. Read on to explore what it takes to create successful boards.

Board of directors

A board of directors consists of people who manage the CEO and formally approve all key decisions of the company (i.e. approving budgets, reviewing the performance of the CEO, succession planning, etc.). These board members are privy to information that is core to your business, and they drive the agenda of the board meeting.

As William A. Sahlman for the Harvard Business Review succinctly puts it, "Directors have a fiduciary responsibility (legal obligation) to protect investors' interests and to make the company perceptibly better than it would have been in their absence."

When structuring a board of directors, there are a few specific recommendations to consider. First, it's important to have an odd number of members to avoid ties in votes. Aim for a manageable number, like five to seven members.

One quality of an attractive board member is someone who has access to networks or connections you may not have or has business expertise in areas where your company is weak. And don't forget to mix it up. In 2006, only 14 percent of the more than 5,000 corporate board seats for S&P 500 companies were occupied by women. Six years later, the number has moved marginally to 16.9 percent.

It's extremely important to keep your board as diverse as possible, taking into consideration not only gender, but also age, color, race, social and occupational background, nationality and religion. And don't be afraid to consider younger people who are not CEOs or executives as some of them have great ideas.

A diverse board will have more of a global mindset, leading to more innovation, better risk management and stronger connections with constituents (employees, customers and business partners), helping your company stay on top of the competition and global market trends.

Next, you'll want to consider compensation. Board members usually receive an annual retainer fee for serving on committees and some equity in your company. You can set aside equity to distribute based on their levels of involvement.

For example, you could set aside 5 percent of the company to distribute to your board members. But if giving away equity isn't good for the business, all cash is an option, too. Since these boards meet frequently, either quarterly or monthly, it's important to consider your long-term compensation plan.

Advisory boards

An advisory board is a less formal group of mentors who have specific industry knowledge, bring their consultative expertise to the CEO, and increase the odds of success and credibility with potential investors. However, advisory board members do not have the power to direct the organization, manage the CEO or have a hand in approving key business decisions.

The CEO has the power to remove an advisory board member or dismiss the board altogether whenever he wants. The reverse is true with boards of directors who have the power to remove the CEO. The CEO can choose the focus of the advisory board, like improving culture, preparing for a new product line launch or entering an international market.

Your advisory board should be made up of experts in the field you are selling to or in your type of business, or they should have access to networks and connections the company has not had success reaching in the past. However, a newer trend in assembling advisory boards is to include millennials.

In order to keep up with ever-changing market trends, it can be beneficial for companies to include someone between the ages of 18 and 35, especially if they are in a consumer-related industry. Millennials are in tune with new trends and can be of immense value when it comes to thinking outside the box, often leading to innovative ideas with their fluency in digital technology.

For advisory boards, typical compensation is $1,000 to $5,000 per meeting for their attendance, based on the size of your company and your company's brand in the marketplace. You can also set aside some equity (anywhere from 0.1 to 2 percent) in your company, especially if you are a startup and you don't have the cash to pay.

It is advisable to appoint advisory board members to specific terms since you will need to change them out periodically as your business evolves, and this will make the removal process much easier. Also, if you distribute equity, make sure you have an agreement with them that when they leave your board, you will buy back their equity stake at a set price.

Typically, an advisory board meets once or twice a year. However, we are seeing these boards move toward more frequent meetings as advisory boards become more important to the growth and success of companies.

"The [advisory] board has really helped me break down the mental barriers I had set for the company," says Lilly Harris, CEO of Man-Machine Systems Assessment in an interview with CEO of Successful Culture and board expert, Marissa Levin. "By being open about my challenges and open to feedback, I was able to get the advice I needed to move forward fearlessly."

Conclusion

No matter what kind of board you create, it's up to you to keep the momentum going. Business is constantly changing, and many boards have not kept up.

Boards must be held accountable for continuous improvement and not get stuck in old ways or thinking. They must work more closely with stakeholders to define new and innovative playbooks. Thus, it is imperative to make sure your board composition not only reflects diversity but also new and relevant skills.

By communicating frequently, creating opportunities for board member participation and focusing on goals, you and your board will be successful, thus helping your business continue to grow successfully.