Several times in recent weeks, I have been asked about advisory boards. Individually, none of the requests are especially remarkable. But when several questions are posed in close succession (such as those listed below), by people in several different countries including Australia, New Zealand, the United States and Ireland, it may be timely (again) to review the phenomenon.

The spate of enquiries set me thinking. Advisory boards have, at various times, been both topical and the source of much confusion and debate. But why the heightened level of interest at this time? Has the recently-published HBR article on shadow boards been a catalyst, or is something else going on? It's almost impossible to tell, except to observe that the person posing the question—usually an entrepreneur—wants to know more. Either they've read or heard about advisory boards, or been advised by someone that they 'need' one (their accountant, a firm specialising in setting up advisory boards, some other consultant). The recommendation is typically justified by it being a stepping stone, "before taking on a full board". The implication is that the entrepreneur does not have to give up control. And therein lies a common misunderstanding: that an advisory board provides a bridge to, or is a substitute for, a board of directors. It is not (*).

Before going any further, let's lay down some definitions:

Turning now to the question posed in the title of this muse: Are advisory boards a good thing? The answer depends on the purpose and function of the group of advisors (let's not use the term 'board' just now).

It's important to note that the 'deemed director' / 'shadow board' risk is borne by the advisor(s), not the manager, entrepreneur or company. But it is easily mitigated. Here are some suggestions:

While this is not an exhaustive list of mitigations, they are globally applicable.

The bottom lines? (Yes, there are two)

(*) If the entity is a company, a board needs to be in place from day one, regardless of whether advice is sought from third parties or not. The role of the board (i.e., corporate governance) typically includes setting corporate purpose and strategy; policymaking; advising, monitoring and supervising management; holding management to account for performance and compliance with relevant statutes; and providing an account (from both a performance and a compliance perspective) to shareholders and legitimate stakeholders. The formality with which these functions are enacted is, appropriately, contextual. Click here for more information.

Long the doyen of corporate governance (Sir Adrian Cadbury used the term "father of corporate governance"), Tricker has just posted this article, a stinging critique of several emergent ideas that, through repetitive use, have permeated thinking and are becoming accepted as conventional wisdom. Risk, culture and diversity are singled out as populist memes. Yet robust evidence to support the notion that any of these memes are directly contributory to effective governance—let alone company performance—in any predictable manner is yet to emerge. Tricker's timing is, once again, exemplary.

Thankfully, Tricker offers far more than a straightforward critique. He reminds readers that the purpose of the board of directors is to govern:  

In calling out this matter, Tricker has hit the nail on the head—the effect of which is to place those motivated by the promulgation of unfounded memes in a rather awkward position. I am with Tricker; our understanding of corporate governance needs to be reset. Rather than pursue new memes (a perfectly adequate definition was established over fifty years ago), boards need to discover how to practice corporate governance effectively. Tricker (Corporate governance: Principles, policies and practices), Garratt (The fish rots from the head) and a few others provide excellent guidance as to how this might be achieved.

Just over twelve months ago (6 January 2016 to be exact), I wrote this muse, a reflection on both the state of corporate governance and the usage of the term. At that time, confusion over the use of the term 'corporate governance' was common, and the profession of director was shadowed somewhat by several high profile failures and missteps. The blog post seemed to hit a nerve, triggering tens of thousands of page views and searches within Musings; many hundreds of comments, questions, debates and challenges (including some from people who took personal offence that the questions were even asked); and, speaking requests from around the world. That many people were asking whether corporate governance had hit troubled waters and were searching for answers to improve board effectiveness was reassuring.

At the macro level, seismic geo-political decisions; the rise of populism and the diversity agenda; and, risks of many types, especially terrorism and cyber-risk have altered the landscape. Also, new governance codes and regulations have been introduced to provide boundaries and guidance to boards. Yet amongst the changing landscape something has remained remarkably constant: the list of corporate failures or significant missteps emanating, seemingly, from the boardroom continues to grow unabated. Wynyard Group and Wells Fargo are two recent additions; there are many others.

One of the joys of working internationally is the opportunities it presents to discuss topics in a range of different contexts. While most of these discussions are either private (with clients) or rather impersonal (conference presentations), some are recorded for the benefit of a wider audience—including this recent conversation with Lavaniya Das of Azeus Convene. We talked about corporate governance, boardroom ethics and how the C-suite is dealing with Brexit:

If you want to explore any of the points discussed in this interview, or challenge them, please feel free to either reply below or get in touch via email.

The last five years of my life have been dominated by research—the goal being to begin to understand how boards influence firm performance through their contributions in the boardroom. It's been a tough journey at times, but the end is now in sight—and thank goodness because a groundswell of interest in how my research might be applied to real situations is starting to become apparent. People in Australia; the UK; Europe; USA; South-east Asia; the Middle East; and, New Zealand have been in touch with questions and requests.

While the research is yet to be published, enquiries are arriving from many quarters including invitations to write an editorial for a leading magazine; speak at the Governance Institute of Australia National Conference; participate in a multi-city (Europe and Asia) speaking tour in 2017; prepare a webcast; and, write a book for practicing directors. These are on top of confirmation from the prestigious Leadership and Organization Development Journal that an article of mine will be published soon (Vol 37, Issue 8), and earlier commitments to deliver a webinar to a world-wide audience; tailor a governance development programme for members of an industry association; and, facilitate several workshops to help companies refine their corporate purpose, strategy and governance frameworks. 

That so many people have begun to question 'conventional' corporate governance thinking (that the board and management must be kept separate; that particular board structural configurations lead to better firm performance; and, that the term 'governance' can be widely applied including beyond the boardroom) has caught me somewhat by surprise. However, my commitment to serve boards and directors who are intent on exerting influence from the boardroom in pursuit of an agreed corporate purpose is a matter of public record. So respond I shall (and happily so).

I've been pondering this question for quite a few years now, since reading a seemingly endless stream of articles about the global financial crisis of 2007–2009 published in the popular press and academic literature. Curiously, many authors identified the board as a source of failure (of corporate governance), yet few if any have offered positive contributions to put corporate governance back on the tracks. This apparent void was one of the motivations of my doctoral research quest. 

However, from time to time, articles do stand out, because the authors speak out. Their comments may not be popular, but take a stand they do. Recently, the ICSA recognised one such author, Ruth Keating, who openly asked the question in a recent essay competition. Two sentences towards the end of her well structured and very readable essay say it all:

My hope is that, by openly asking the question (as Ms Keating has) others might join the debate. One outcome could be a new understanding of corporate governance and a genuine commitment by the board to add value. Who knows where this might lead, perhaps even to a new normal, whereby boards expect to exert influence from and beyond the boardroom. If that is achieved, a new dawn might not be too far away.

This muse is the second in an occasional series being written over the holiday period entitled Tough questions about boards. The first muse considered the question of board size. This one looks at board commitment, by asking the question:

The number of concurrent board appointments is a touchy topic for some directors, especially those who think in terms of turning and contributing 'on-the-fly'. How any director can expect to make meaningful a contribution without reading reports and thinking critically about the matters at hand well in advance of the actual board meeting is beyond me. I've written about this before. Then, I suggested that four concurrent directorships (of mid-cap publicly-listed or privately-held companies) was a reasonable upper limit for any director that hoped to make a meaningful contribution to board discussions, decision-making and, ultimately, company performance.

The feedback at the time suggested the commentary struck a nerve, and that change was coming. Now, two years on, I'm not so sure. A conversation with a colleague earlier this week leads me to believe not much has changed. The colleague recounted a conversation he had with a director who off-handedly said that ten boards was her working maximum. "Beyond that, things get a bit hectic", she apparently said. Imagine that: ten boards! She must have a big brain to hold the details of ten companies, and know something about time management that most of us don't. However, that director is not alone, ​if the stories in this article are any indication. 

Why do boards and shareholders continue to ask busy people, including so-called celebrity directors, to join their boards when there are literally hundreds of highly competent director candidates (with sufficient space in their diary to learn the business well and make a meaningful contribution) available to choose from? Have they/we lost sight of why boards exist and of their role in value creation? On the evidence above, perhaps we have.

​One of the enduring questions of my career as a board advisor and company director is this:

​My father was a company director, of a large processor in the dairy sector for fifteen years. He hadn't heard of the term until six months before he retired in 2001, when a young director who had recently joined the board started using the term. To that point, my father thought that directors governed and provided direction, and he was not alone.

A search back in time reveals that Eells (a researcher) was the first to use the term—in 1960—to describe the functioning of the polity (the board). Then, silence reigned until 1977 when the term appeared in HBR and subsequently in 1980 in academic journals. Yet since 2000, when the term entered the public's consciousness (perhaps as a result of media reports of hubris, incompetence, moral failures and fraud amongst directors), usage has exploded.

​Today, the term's usage has become so commonplace and distorted that a correction is needed.

​Corporate governance--the act of steering, guiding and piloting—describes what boards [should] do when in session. It does not describe and is not a proxy for the board itself, nor any other party or activity outside the boardroom. Regulators (to set rules), proxy advisers (lobbyists on behalf of shareholders and other interests), and shareholder meetings (communications) are all important, but none is corporate governance.

Rob Campbell, your call to address this misunderstanding is both timely and most welcome. Directors institutes, business schools and consultants should take note, lest the expectations of the market, regulators and shareholders—not to mention directors themselves—wander further away from their original purpose, which is to pursue business performance in the best interests of the company and on behalf of shareholders.