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    Advisory boards: A good thing, or no?

    Accountability Corporate Governance Effectiveness Entrepreneur Governance Tough Questions
    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.
    • What is an advisory board?
    • I'm running a company and it's going gang-busters; but a consultant said I should set up a[n advisory] board. Why, and should I take this recommendation seriously?
    • What does an advisory board do anyway?
    • What is the relationship between an advisory board and a real board? 
    • Could you (me), given your 'governance expertise', chair my advisory board?
    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 or a founding group—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 establishing advisory boards, some other consultant). The recommendation is typically justified on the basis that advisory boards are a stepping stone, "before taking on a full board". The implication is that the entrepreneur or founding group 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:
    • A director is a person who acts as a director of a company and fulfils various (specified) duties, as defined in the [company] law. This definition is universal. Collectively, a group of directors is called a board of directors. Although the name (director) is reserved in the statute, the name itself is not as important as the function the person is performing. Regardless of the term used, if a person is doing things that a director would normally be expected to do, they can be deemed to be a director. If the entity is a company then it must have at least one director (some jurisdictions require at least two), which means it has a board already. But that is not to say that the normative practices of corporate governance (the provision of steerage and guidance, monitoring and supervising management, etc.) are apparent, or even necessary (most statutes do not mention the word 'governance').
    • An advisor is someone who is retained (typically from outside the company) to provide advice that the recipient may, at their sole discretion, accept or reject. In a company context, the person or group seeking the advice could be a manager, a company founder/entrepreneur, a director or the board of directors. Examples include a lawyer;  a coach; a tax, IT or AI specialist; or an industry expert.
    • An advisory board is a term of convenience that has entered the lexicon in the past decade or so, usually in the context of smaller size companies. It is typically used to describe a group of advisors who meet periodically—even regularly—to consider questions and provide advice.
    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):
    • ​If the group is formed to discuss a situation and provide specialist advice, that is little different from the retention of a lawyer or any other subject matter expert. This can be a good thing—depending on the quality of the advice provided, of course!
    • ​If the group meets regularly, and especially if meetings are conducted (or tasks performed) in a manner normally associated with a board of directors, then the group may be exposing itself to additional risks. Indicators include an advisory board charter, the appointment of a board chair, a regular meeting schedule with an agenda and minutes (which are subsequently checked and approved at a later meeting) and the consideration of reports produced by a manager (or management). If such indicators are present, the group may be, in the eyes of the law, acting as if it is a board of directors (and the duties and responsibilities that entails). Thus the terms 'deemed directors' and 'shadow board' prevalent in various jurisdictions.
    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:
    • ​When a manager (entrepreneur, director, board) seeks advice, advisors should request a terms of reference or an engagement letter that clearly defines the type of advice sought, and by whom; the advisory period; the expected deliverables; and the fee to be paid. After the advice is provided (or the advisory period lapses), the advisor(s) should be released.
    • The term 'advisory board' should not be used, ever. To do so implies regularity and conduct normally characteristic of a board of directors.
    • If external advice is required from several advisors, call the group for what it is, a group of advisors (or some other informal descriptor).
    • Meetings should be called and run by the manager (entrepreneur, director, board).
    • The person or group seeking the advice may elect to take notes for his/her/their own record, but these should not be described or circulated as 'minutes'.
    While this is not an exhaustive list of mitigations, they are globally applicable.
    The bottom lines? (Yes, there are two)
    • Managers (entrepreneurs, directors, boards) can and should continue to seek specialist advice from external parties from time to time.
    • Advisors should avoid being enthralled by the prospect of joining an advisory board—the risks are not worth it. Win the business, provide the advice, move on.
    (*) 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.
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    Re-conceiving 'control', as a constructive mechanism

    Accountability Corporate Governance Decision Making Governance Performance Tough Questions
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    In business, as in life, the task of exerting control is commonly perceived as being one of exercising limits; of saying 'no' and imposing constraints. Such perceptions are well-founded. Check these verb usages of 'control', lifted straight from the dictionary:
    • to exercise restraint or direction over; dominate; command
    • to hold in check; curb
    • to test or verify (scientific experiment)
    • to eliminate or prevent the flourishing or spread of
    If you have spent much time in boardrooms, you'll know that director behaviour tends to be consistent with these definitions, more so if the chief executive is ambitious or entrepreneurially-minded (the two attributes are not necessarily the same). When asked, board justification for exercising caution is straightforward: to keep the chief executive honest and to keep things 'on track'.
    Such an understanding—holding management to account—seems admirable. Monitoring and supervising management is one key task (of four) of corporate governance after all. But does a strong hand actually lead to better outcomes? More pointedly, how might the exercise of restraint and limits advance the purposes of the company (noting the board is responsible for ensuring performance goals are achieved)? Such conduct is analogous to applying the brake when the intention is to drive on. A growing body of academic and empirical evidence suggests that a strong hand, like increased compliance, may actually counter-productive.
    Rather than persist with what is demonstrably a problematic approach, it might be more fruitful for boards to consider another perspective. ​What if control is re-conceived in positive terms (namely, constructive control), whereby the board's mindset is to provide guidance (think: shepherd or coach) by ensuring the safety of the company and steering management to stay focused on agreed purpose and strategy? Might this deliver a better outcome? 
    Emerging research (here, but contact me to learn more) suggests the answer is 'yes'. Strongly-engaged and strategically competent boards that display high levels of situational awareness as they debate issues from multiple perspectives and make informed decisions in the context of the long-term purpose of the company can make a difference. Constructive control is one of five important behavioural characteristics of effective boards identified in this research.
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    Hitting the nail, squarely, on the head

    Accountability Decision Making Diversity Governance Performance Research Tough Questions
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    Bob Tricker just did it again.
    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:  
    The governance of a company includes overseeing the formulation of its strategy and policy making, supervision of executive performance, and ensuring corporate accountability.
    The purpose of a profit-oriented company is also made clear (a point famously made by Friedman):
    To create wealth, by providing employment, offering opportunities to suppliers, satisfying customers , and meeting shareholders' expectations.
    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.
     (Disclosure: The two books named in this article are the ones that I refer to most often when working with boards. I commend them to you.)
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    Twelve months on: How much progress have we made?

    Accountability Decision Making Diversity Ethics Governance Leadership Performance Research Tough Questions
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    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.
    That was twelve months ago. How much progress has been made since?
    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.
    Sadly, companies and their boards continue to fail despite good practice recommendations in the form of governance codes and (supposedly) increasing levels of awareness of what constitutes good practice. This is a serious problem: it suggests that, despite the best efforts of many, progress has been limited. Clearly, ideas and recommendations are not in short supply, but what of their efficacy—do they address root causes or only the symptoms? And what of the behaviours and motivations of directors themselves, and the board's commitment to value creation (cf. value protection or, worse still, reputation protection)?
    That the business landscape is and will continue to be both complex and ever-changing is axiomatic. If progress is to be made, shareholders need to see tangible results (a reasonable expectation, don't you think?), for which the board is responsible. If the board is to provide effective steerage and guidance, it needs to be discerning, pursuing good governance practices over spurious recommendations that address symptoms or populist ideals. How might this be achieved? 
    An important priority for boards embarking on this journey towards effectiveness and good governance is to reach agreement on terminology, culture, the purpose of the company and the board's role in achieving the agreed purpose. If agreement can be reached, at least then the board will have a solid foundation upon which to assess options, make strategic decisions and, ultimately, pursue performance.
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    On corporate governance, boardroom ethics and Brexit

    Accountability Decision Making Governance Performance Tough Questions
    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.
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    On the cusp of something big?

    Accountability Governance Performance Research Tough Questions
    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).
    If you want to ask a question or toss around some ideas, please get in touch. I look forward to the discussion.