The Role Of Advisory Boards - Odgers Berndtson

The Role of Advisory BoardsWho, What, Why and How?

nExecutive SummaryAn increasing number of organisations are appointing advisory boards.There are many good reasons for a company to do so. It could be to ensureit receives expert advice on emerging technology or scientific advances, orto gain insight into doing business in diverse global markets.An advisory board may also assist a company to sell its products andservices to government customers, or to provide counsel on public relationsand reputation management.Advisory boards are no substitute for statutory boards of directors. Indeed,properly constituted, advisory boards should complement and strengthenthe existing board.Equally, to be effective, advisory boards need a clear remit. The board’sobjectives and terms of reference, as well as the expected time commitment,should be established from the start.This paper, based on Odgers Berndtson’s extensive experience of helpingcompanies to appoint advisory board members, looks at the role andcontribution of advisory boards more closely.We conclude that advisors can play an increasingly significant role inassisting companies through this period of economic uncertainty, regulatorychange and intense global competition.info@odgersberndtson.com www.odgersberndtson.co.uk3

nWhat Is An Advisory Board?It may be best to start by establishingwhat advisory boards are not. They arenot substitutes for statutory boards ofdirectors and do not have authority over thegovernance of an organisation.The selection and oversight of management,monitoring of performance, approval ofstrategy and assessment of risks are allsubjects properly reserved for the mainboard. An advisory board can supportthe board by providing expert insightor contacts, but it must be clear whereultimate decision-making authority andcollective responsibility lie.This point is well made by OwenJonathan, an executive board director atPricewaterhouseCoopers UK, which hasan advisory board: “The phrase ‘board’ issomewhat misleading. They don’t assume alevel of formality that a board of directorswould. Members don’t stand in anysupervisory or independent non-executivefunction. The board of directors and theadvisory board sit as separate but parallelbodies.”Having established clear water betweenan advisory board and the statutoryboard, it follows that advisory boards haveconsiderable freedom of manoeuvre interms of make up and remit. Because theyhave no governance authority or statutoryresponsibilities, an advisory board can meetless frequently, be consulted on an ad hocbasis as required, or focus on a narrowerset of issues than the full board mustnecessarily confront.Diane Coyle, Vice-Chairman of the BBCTrust and an advisory board member atEDF Energy and ING Direct, underscoresthis argument. She says: “You arenot constrained by the same narrowinterpretation of responsibilities, similar tothose found in a non-executive role.”4Advisory boards can be considerably more‘light touch’ in terms of process. There is noneed for elections, term limits, committeestructures or extensive disclosure of theadvisory board’s role, remuneration orperformance. They are therefore free toconcentrate their energies on their corerole, namely to complement the mainboard by providing specialist experience,knowledge and contacts not readilyavailable elsewhere.How they do so, and on what topics, willdepend very much on the organisation inquestion. Some companies may wish theiradvisory board to provide intelligenceon the latest scientific or technologicaldevelopments. Others will draw on theiradvisors for knowledge of internationalrelations and government affairs, whilesome may seek insight on public relationsand reputation management.Large overseas multinationals may seekto appoint country-specific advisoryboards to develop in-market expertiseand to understand local business andpolitical culture. Other organisations willseek advisory board directors who canhelp develop business by opening doorsand making introductions, or to act as anambassador on behalf of the company atindustry events or social functions.Owen Jonathan says: “Our advisory boardis an amalgam of individuals that are therefundamentally to provide client advisoryservices. They act as a disparate group ofinterested specialists.”The fact that advisory boards can be moreflexible, informal and light touch has a flipside: they necessarily have less influence. AsSir John Scarlett, a senior advisor to MorganStanley and former Head of the SecretIntelligence Service, argues: “There mustbe a readiness to accept the limitationsas well as the advantages of the advisoryrole. If advisors sit as frustrated executives,info@odgersberndtson.com www.odgersberndtson.co.ukAn advisoryboard cansupport theboard byprovidingexpert insightor contacts, butit must be clearwhere ultimatedecision-makingauthorityand collectiveresponsibility lie

Most businessesdecide tocreate advisoryboards when it’sapparent thatthere is a subjectarea whereexpert outsiderscan augmentthe knowledge,understandingand strategicthinking ofthe board andmanagementteamthe advisory board is unlikely to functioneffectively.”nWhy Create An AdvisoryBoard?Most businesses decide to create advisoryboards when it is apparent that there is asubject area where expert outsiders canaugment the knowledge, understandingand strategic thinking of the board andmanagement team. Experienced advisoryboard members can provide technical orspecialist advice and extend the range ofskills and understanding of managementand the board in areas beyond their day-today fields of expertise.There is a critical balance to be struck,however. When considering thecomposition of the advisory board, thecompany should give thought to what skillsand experience rightly belong on the mainboard. This point was recognised by PaulMyners, formerly chairman of Marks &Spencer and subsequently a UK governmentminister, in his 2001 review of institutionalinvestment.Myners wrote: “One would not for exampleexpect to find a board of directors of apharmaceutical company with no scientificqualifications and no experience of R&D,arguing that this was not a problem as theytook advice from a firm of expert scientificconsultants.They would certainly take advice andthere would be directors who lackedR&Dexperience, but collectively, the boardwould have the experience and skillsto challenge the advice received at asophisticated level.”Companies should seek advisory boarddirectors whose qualities complement theexisting board, while remaining mindfulinfo@odgersberndtson.com www.odgersberndtson.co.ukthat an advisory board should not be usedto mask gaps in knowledge or skill thatrightly belong on the main board.Advisory boards can be a useful wayfor the main board to challenge its ownassumptions, particularly on specialist ortechnical matters. As Bill Emmott, formereditor of The Economist and a prominentadvisory board member, points out: “Theyare there to give focus to or sometimeschallenge research and intelligence workbeing done in the company, thus avoidinggroupthink and giving direction on bigpicture issues.”Advisory boards provide access to talentthat boards would otherwise not be ableto tap. Owen Jonathan adds: “They area way of getting expert advice from arange of experts whom you might not beable to source in a more formal capacity.They develop propositions and provideacquaintance with factual information thatbusinesses don’t have.”nWho Should Serve?The composition of the advisory boardwill depend on an organisation’s goalsand priorities. A board intended to givea company clout in Westminster andWhitehall is likely to look quite differentfrom one that offers insight on politicalchange in emerging markets or anunderstanding of the latest medical orscientific research.Denise Collis, a member of the advisoryboard to the business schools at both Leedsand Exeter Universities and Group HRDirector at BUPA, says: “It’s about contextand expectation. The value that peoplecan add is commensurate with what theadvisory board needs and aspires towards.”Sir John Scarlett adds: “You are lookingat experienced people who have an5

understanding of all the challenges thatcome with running an organisation as wellas working in a particular industry. Afterthat, it is a question of the particular skillsthey have and where their speciality lies.”The main consideration for the compositionof any advisory board is absolute clarityabout what role it is intended to fulfil. Is itthere as a business development tool, toraise profile and make introductions? Or tohelp fill gaps in the main board’s knowledgeand understanding of specialist issues? Inall cases, the advisory board’s objective willdetermine its composition.As with any board of directors, a mixof experience and knowledge can helpenhance the performance of an advisoryboard. Emmott argues: “Advisors whounderstand different geographies andcome from different intellectual disciplinescan provide insight into key economic andgeopolitical challenges. They can help theboard think outside the box.”Finally, and regardless of the expectedrole of the advisory board, it should beexpected that every director will have a realenthusiasm for the business. As Emmottsays: “Advisory board members can opendoors and provide connections. But to makeit successful, there has to be some genuineassociation with the company.”nThe Critical Role of TheChairWhile the best advisory boards have a clearremit and are constructed accordingly, theywill struggle to succeed if they lack the clearleadership of an effective chair.Denise Collis argues that the firstpriority for any chair is to determine theappropriate size of the advisory board: “In6my experience, an effective advisory boardworks better with a smaller number ofpeople on the board whilst requiring thesame level of commitment as a public board.If you don’t get that, you get members whodip in and dip out and you lose that sense ofpurpose and continuity.”Although advisory board meetings may notrequire the same level of preparation as aformal board meeting, Collis says that thechair must set the tone of advisory boarddiscussions. “It’s about creating a culturewhere there is a real expectation that thepapers have been read and that the peoplewho come along bring ideas to the table,shape what’s happening and really get stuckin,” she says.To make the advisory board functioneffectively, it is important for the chairto establish and foster a good workingrelationship between the members of theadvisory board, and between the advisoryboard and the main board or managementteam as appropriate.nHow To Make AdvisoryBoards WorkSuccessful advisory boards are clear abouttheir purpose. We have seen examples ofcompanies forming advisory boards andonly then thinking about how they wish touse them. This is unhelpful to all parties,and usually results in the organisationextracting little value from the board.Clearly setting and communicating the rolesand expectations of individual advisors andarticulating the mandate and purpose ofthe board is essential. As Sir John Scarlettmakes clear: “The advisory board must havean unambiguous mission and definition.The structure, research background andfinancial arrangements must be clear.”info@odgersberndtson.com www.odgersberndtson.co.ukThey are a wayof getting expertadvice from arange of expertswhom you mightnot be able tosource in a moreformal capacity