Advisory boards and deemed directors: redux

I've been asked to several times over the last month to explain or expand my views on advisory boards. It seems that some of the comments I've made in meetings and on this blog have set people thinking. That's not a bad thing in my view, but because boards are complex, things change, and the popular answer is not always the best answer (although it can be). The most recent discussion took place on a domestic flight last week. I happened to be seated next to a professional acquaintance. We struck up a good conversation on a range of topics. After a lull, he asked "So what have you got against advisory boards?" We had a good chat. Rather than replay that conversation here, I thought it might be helpful if I pulled up the following short piece to ponder. It was written in December 2013:

The matter of advisory boards has become topical in recent years, particularly amongst emerging companies seeking additional help. Advisory boards are established in many cases to provide advice and oversight on some sort of ongoing basis—the motivation being to access advice without forfeiting control or passing responsibility.

However, vital differences between boards of directors and advisors to boards are not well understood, such that advisors may be deemed to be directors (or officers) anyway. Kevin McCaffrey made this point at a symposium earlier this month (see point #4). The matter has also been discussed on the Institute of Directors' discussion page on LinkedIn.

As a further illustration, the Employment Relations Authority has reportedly imposed maximum penalties against a business owner and her advisor in relation to an employment matter. While this case appears to involve malpractice, it highlights the point of this post—that advisors can be (and increasingly are) deemed to be accountable in the eyes of the law. Caveat emptor.

My view on advisory boards is "be careful, be very careful". If you want advice on a specific matter, buy it. However, if you want on-going assistance to set the direction of the company, spread the decision-making risk and to drive performance, then a board can be a helpful construct. But please, don't get advisory services confused with corporate governance.