Board consultants can bring considerable value to a company`s board of directors and management. However, as with supervisory board observers, this agreement is almost exclusively stipulated contractually, with few legal or customary rights or obligations granted or imposed on the company or consultant. For this reason, directors and management should ensure that the agreement governing the agreement covers key issues that are important to the parties and is accurately worded. Since advisors are not elected and do not have the authority to make business decisions, they do not have fiduciary duties to the Corporation`s shareholders because of their advisory role. This is a significant difference from the directors of the corporation, who have fiduciary duties and are subject to liability arising from a breach of those obligations. This distinction can be a contributing factor to the increasing use of advisory boards that allow consultants to contribute to the management and strategic planning of the company without the associated tasks (and liability risks) as a director of the company. The exact tasks and responsibilities of a board consultant depend on the specific needs and objectives of the company. Board consultants typically provide the company with knowledge, expertise, and relationships that expand those of the company`s management and directors. For example, an entrepreneurial company may hire board consultants who started their own business to identify common pitfalls or be a sounding board for product ideas or business plans. A mature publicly traded company may hold an advisory board because advisors, not burdened by regulatory and oversight obligations, are free to focus exclusively on strategic topics such as technology improvements, marketing and product development, etc.
This article and the accompanying article on board advisors both deal with a corporate governance regime in which the capabilities of the formal board of directors are complemented by persons appointed as observers or advisors. These persons do not have the fiduciary duties of the elected members of the board of directors. Board observers are usually a phenomenon of venture capital-backed companies and represent the interests of these investors. In contrast, the use of board advisors is increasingly becoming a feature of board meetings across the spectrum, including narrow-held family businesses, venture capital or privately funded companies, and publicly traded companies. Like board advisors, board observers attend meetings of a company`s board of directors and are generally entitled to all information provided to board members. Like board councillors, board observers also have no voting rights. In many cases, investors in companies funded by venture capital or private equity firms have the contractual right to appoint board observers to attend meetings and receive information available to directors. A Council observer represents the interests of the appointing investor and, therefore, from the perspective of the entity, the Council observer is a mandatory requirement determined by the rights and needs of investors. For this reason, while observers may provide the board and management with valuable advice and perspectives similar to those of advisors, they may face greater skepticism or hostility from directors or management because they primarily protect the group of investors they represent. Unlike members of a corporation`s board of directors, shareholders do not elect board advisors. Instead, consultants are appointed by the company`s board of directors or management and usually serve the board of directors or management at will.
Before a company begins a relationship with a board consultant or establishes an advisory board, the company and its advisor must have a clear idea of the benefits the company expects from the relationship and how the relationship will work in practice. A company and its advisor must also be prepared to address the common concerns of board advisors and protect the important interests of the company throughout the relationship.