Three things good advisors do for clients

Business leaders are typically lonely. They are typically surrounded by acolytes who depend on them for a living. Naturally, the business leader often takes advice from his or her staff with a grain of salt. There is always suspicion and paranoia about the true intent or motivation subordinates have when giving advice to the “boss”, if they dare.

Thus, the biggest threat to business leaders is selection bias on what to hear, what to pay attention to. Researchers have long studied bias in decision making, and I will make no attempt to contribute to the field in this short post. Instead, I am going to argue that trusted advisors serve as insurance policies against biased decision making. I support this claim with three pillars: objectivity, detachment and independence.

Objectivity

Advisors bring relative objectivity to a relationship by working with multiple clients in various industries and from conducting independent primary and secondary research during their engagements. Advisors observe a client's business without having operational experience in its idiosyncrasies and also maintain a dense network of specialists who are able to offer expertise on demand.

Detachment

Second, the advisor has no ownership of outcomes, thus can think freely outside the normal business dogma. Obviously operational results matter. No consultant worth its salt will be happy advising a firm that is failing and not improving. The whole point of an advisory relationship is to correct a wrong, or to solve a problem. There is always something that needs to improve. However, the advisor’s role is to help CEOs and their firms find solution themselves. The advisor points a client in the right direction and provides analytical and strategic thinking support. An advisor's skill is not to do the work the firm does, but to remain detached and analyze systemically the business decision at hand.

Independence

Advisors help assess a business’s culture, organizational behaviors and habits. Advisors do not get involved in a client’s organizational politics or practices (e.g. going to the annual gathering, daily business meetings, etc.) unless to gather specific data or information. This allows the leader who hired the advisor to receive unbiased information about potentially harmful habits that need to be corrected. Advisors thus face a challenging position, as their "Boss" may well be the source of inspiration of bad habits that plague the organization. Examples of this includes covering up of clear sexual harassment against female workers, micro-discrimination against minorities, environmental negligence, tax evasion or accounting fraud, among other equally important unwanted behaviors. Good advisors are able to limit their exposure to clients so that revenue from the relationship is not material to the advisor's business if he or she decides to fire the client.

An advisor’s objectivity is reinforced by his or her detachment from the outcomes of the firm, which in turn helps the advisor maintain clear thinking and remain independent from the day-to-day operational and cultural wars organizations typically face. Arthur Anderson and its client Enron was case where the pillars where violated systemically: The objectivity was lost because the client was too important, the firm was embedded in the client's operations and the financial outcome mattered to the advisor. All this led the principal advisors to commit fraud, cooking the books and intentionally misleading investors.

Thus, in selecting an advisor, business leaders should look at the person’s integrity, detachment from the assets of the firms he or she advises and the advisor’s capacity for independent thinking and acting, unencumbered by any social, business or political ties to the organizations he or she advises. A true advisor advises a person, not a firm.

Most business leaders run their businesses well, but at the same time most often agonize about decisions without the counsel of a qualified, dependable and honest advisor. This need not be. Advisors help business leaders make better high-impact business decisions.