This might sound like a rather odd question to ask, because an affirmative answer seems so obvious. Yet in my experience, many Boards do not exercise the option of seeking advice directly, despite the benefits of doing so being clear. Generally, Boards turn to the CEO to fill information gaps, because they are well-placed to provide the additional information required. However, the CEO is not always the best source of information.

In what situations should the Board engage independent advisors directly? Whenever independence is crucial, or there is a conflict of interest. Three areas emerge as prime candidates to engage independent advice (although there may be others as well):
  • Risk management: To do otherwise is to rely on management's view of risk—akin to asking a rustler to report on the number of animals lost. I wrote about this recently.
  • Legal advice: Leading governance expert, Dr Richard Leblanc, recently made a strong case for Boards to engage legal advisors who are not conflicted by also providing advice to management.
  • Strategy: Several researchers (*) have suggested that the provision of independent contributions (to supplement contributions from management and Board members) is extremely helpful, because it exposes the Board to a more diverse set of trends and options as strategy is developed.

If Boards are truly committed to acting in the best interests of the company (or the shareholder, depending on the jurisdiction), the answer must, unequivocally, be "yes".
My hope for 2013 (and beyond) is that more Boards will start to walk the talk.

(*) contact me for references.