The Role of Advisory Boards Who, What, Why and How? n Executive Summary

An increasing number of organisations are appointing advisory boards.

There are many good reasons for a company to do so. It could be to ensure to gain insight into doing in diverse global markets. it receives expert advice on emerging technology or scientific advances, or An advisory board may also assist a company to sell its products and and reputation . services to government customers, or to provide counsel on public relations theAdvisory existing boards board. are no substitute for statutory boards of directors. Indeed, properly constituted, advisory boards should complement and strengthen shouldEqually, be to established be effective, from advisory the start. boards need a clear remit. The board’s objectives and terms of reference, as well as the expected time commitment, contributionThis paper, based of advisory on Odgers boards Berndtson’s more closely. extensive experience of helping companies to appoint advisory board members, looks at the role and changeWe conclude and intense that advisors global competition.can play an increasingly significant role in assisting companies through this period of economic uncertainty, regulatory

[email protected] | www.odgersberndtson.co.uk 3 n What Is An Advisory Board? Advisory boards can be considerably more An advisory board can It may be best to start by establishing support the structures‘light touch’ or in extensive terms of disclosureprocess. There of the is no board by not substitutes for statutory boards of need for elections, term limits, committee providing directorswhat advisory and do boards not have are not.authority They areover the performance. They are therefore free to expert insight governance of an organisation. concentrateadvisory board’s their role, energies remuneration on their core or or contacts, but it must be clear where ultimate role, namely to complement the main decision-making strategyThe selection and assessment and oversight of risks of management, are all board by providing specialist experience, authority subjectsmonitoring properly of performance, reserved for approval the main of knowledge and contacts not readily and collective board. An advisory board can support available elsewhere. responsibility lie the board by providing expert insight depend very much on the organisation in How they do so, and on what topics, will ultimate decision-making authority and advisory board to provide intelligence collectiveor contacts, responsibility but it must be lie. clear where question. Some companies may wish their

on the latest scientific or technological developments. Others will draw on their This point is well made by Owen someadvisors may for seek knowledge insight on of publicinternational relations Jonathan, an executive board director at andrelations reputation and government management. affairs, while PricewaterhouseCoopers UK, which has levelan advisory of formality board: that “The a board phrase of ‘board’ directors is Large overseas multinationals may seek somewhat misleading. They don’t assume a supervisory or independent non-executive boards to develop in-market expertise function.would. Members The board don’t of directorsstand in any and the andto appoint to understand country-specific local business advisory and advisory board sit as separate but parallel bodies.” helppolitical develop culture. business Other byorganisations opening doors will seek advisory board directors who can an advisory board and the statutory ambassador on behalf of the company at Having established clear water between industryand making events introductions, or social functions. or to act as an considerable freedom of manoeuvre in board, it follows that advisory boards have have no governance authority or statutory is an amalgam of individuals that are there terms of make up and remit. Because they fundamentallyOwen Jonathan to says: provide “Our client advisory advisory board services. They act as a disparate group of responsibilities, an advisory board can meet interested specialists.” setless of frequently, issues than be the consulted full board on mustan ad hoc necessarilybasis as required, confront. or focus on a narrower The fact that advisory boards can be more

Trust and an advisory board member at flexible, informal and light touch has a flip Diane Coyle, Vice-Chairman of the BBC Stanleyside: they and necessarily former Head have of less the influence.Secret As this argument. She says: “You are Sir John Scarlett, a senior advisor to Morgan EDF Energy and ING Direct, underscores be a readiness to accept the limitations Intelligence Service, argues: “There must thosenot constrained found in a bynon-executive the same narrow role.” interpretation of responsibilities, similar to as well as the advantages of the advisory role. If advisors sit as frustrated executives,

4 [email protected] | www.odgersberndtson.co.uk Most the advisory board is unlikely to function that an advisory board should not be used decide to effectively.” create advisory rightly belong on the main board. boards when it’s to mask gaps in knowledge or skill that apparent that n Why Create An Advisory there is a subject Board? area where Advisory boards can be a useful way expert outsiders for the main board to challenge its own can augment editorassumptions, of The Economistparticularly and on aspecialist prominent or the knowledge, Most businesses decide to create advisory technical matters. As Bill Emmott, former understanding boards when it is apparent that there is a are there to give focus to or sometimes and strategic andsubject strategic area where thinking expert of the outsiders board and can advisory board member, points out: “They thinking of managementaugment the knowledge,team. Experienced understanding advisory the board and board members can provide technical or groupthinkchallenge research and giving and direction intelligence on big-work management specialist advice and extend the range of picturebeing done issues.” in the company, thus avoiding team skills and understanding of management and the board in areas beyond their day-to- Advisory boards provide access to talent

day fields of expertise. that boards would otherwise not be able to tap. Owen Jonathan adds: “They are There is a critical balance to be struck, ablea way to of source getting in expert a more advice formal from capacity. a however. When considering the Theyrange develop of experts propositions whom you and might provide not be andcomposition experience of therightly advisory belong board, on the the main company should give thought to what skills acquaintance with factual information that board. This point was recognised by Paul businesses don’t have.” Myners, formerly chairman of Marks & n Who Should Serve? investment.Spencer and subsequently a UK government minister, in his 2001 review of institutional The composition of the advisory board

and priorities. A board intended to give Myners wrote: “One would not for example awill company depend clout on an in organisation’s Westminster andgoals expect to find a of a Whitehall is likely to look quite different pharmaceutical company with no scientific from one that offers insight on political qualifications and no experience of R&D, change in emerging markets or an consultants.arguing that this was not a problem as they understanding of the latest medical or took advice from a firm of expert scientific

scientific research. They would certainly take advice and board to the business schools at both Leeds there would be directors who lackedR&D Denise Collis, a member of the advisory toexperience, challenge but the collectively,advice received the board at a sophisticatedwould have the level.” experience and skills and expectation.Exeter Universities The value and that Group people HR Director at BUPA, says: “It’s about context

Sircan John add isScarlett commensurate adds: “You with are what looking the Companies should seek advisory board advisory board needs and aspires towards.” directors whose qualities complement the existing board, while remaining mindful at experienced people who have an

[email protected] | www.odgersberndtson.co.uk 5 understanding of all the challenges that They are a way of getting expert my experience, an effective advisory board advice from a come with running an organisation as well sameworks level better of withcommitment a smaller as number a public of board. range of experts as working in a particular industry. After people on the board whilst requiring the whom you might that, it is a question of the particular skills dip in and dip out and you lose that sense of not be able to Thethey main have considerationand where their for speciality the composition lies.” purposeIf you don’t and get continuity.” that, you get members who source in a more of any advisory board is absolute clarity formal capacity Although advisory board meetings may not require the same level of preparation as a about what role it is intended to fulfil. Is it there as a tool, to chair must set the tone of advisory board raise profile and make introductions? Or to formal board meeting, Collis says that the help fill gaps in the main board’s knowledge determineand understanding its composition. of specialist issues? In papersdiscussions. have “It’sbeen about read andcreating that thea culture people all cases, the advisory board’s objective will where there is a real expectation that the

who come along bring ideas to the table, enhanceAs with any the boardperformance of directors, of an aadvisory mix shape what’s happening and really get stuck of experience and knowledge can help Toin,” make she says. the advisory board function understand different geographies and comeboard. from Emmott different argues: intellectual “Advisors disciplines who can provide insight into key economic and effectively, it is important for the chair geopolitical challenges. They can help the to establish and foster a good working board think outside the box.” boardrelationship and the between main board the members or management of the teamadvisory as appropriate. board, and between the advisory

Finally, and regardless of the expected n How To Make Advisory enthusiasmrole of the advisory for the business. board, it shouldAs Emmott be says:expected “Advisory that every board director members will can have open a real Boards Work

Successful advisory boards are clear about doors and provide connections. But to make their purpose. We have seen examples of it successful, there has to be some genuine companies forming advisory boards and association with the company.” n The Critical Role of The andonly usually then thinking results aboutin the howorganisation they wish to Chair extractinguse them. Thislittle is value unhelpful from theto all board. parties,

While the best advisory boards have a clear and expectations of individual advisors and articulatingClearly setting the and mandate communicating and purpose the of roles leadershipremit and are of anconstructed effective chair. accordingly, they the board is essential. As Sir John Scarlett will struggle to succeed if they lack the clear makes clear: “The advisory board must have priority for any chair is to determine the appropriateDenise Collis size argues of the that advisory the first board: “In an unambiguous mission and definition. The structure, research background and financial arrangements must be clear.”

6 [email protected] | www.odgersberndtson.co.uk It’s about context An advisory board should be seen as a and expectation. the main board supports the concept resource that can usefully be tapped to The value that An important first step is to ensure that people can add understands its purpose and remit. The is commensurate of appointing an advisory board, and opportunityaid the company’s to shape success. the agenda It is helpful, and with what the main board and the advisory board should therefore, if the executive team have the advisory board bebalance clearly of understood responsibilities by all between sides. the needs and insights.highlight the topics on which they would aspires towards like the advisory board’s advice and company and the advisory directors have On appointment, it is important that the that the advisors can alert the company toEqually, relevant dialogue developments must be two-wayor important so a shared view of the time involved. Having contacts. The company secretary can agreed the commitment, both sides must be a useful intermediary to ensure that directorsstick to it. are At onecalled extreme, upon far it ismore easy often for ‘mission creep’ to develop so that advisory uncluttered. communication flows are kept open and than anticipated, or than the remuneration directorsjustifies. Equally, may become if there disconnected is too long from thebetween business each and contact, lose interest the individual and focus. isFinally, no requirement how much toshould disclose advisory fees paid board to directors be paid, and how? While there

advisors, and therefore companies can be andIt may email be that contact most or of attendance the advisory at companyboard’s more flexible in how they reward advisory work will be informal, carried out via phone board directors, in reality a rough market for the advisory board to meet in person rate will apply. A fee range of between events. Nevertheless, it is a good discipline that£1,000 scale to £2,000and the per other day directors is realistic, perhaps with together the participants in a boardroom the chairman being paid towards the top of settingperhaps and quarterly create aor formal twice structureyearly to bringfor the Incloser contrast to the to lower the fees mark. paid to non-executive

Theboard’s organisation work. and advisory board must directors may include a performance element.directors, If rewards business to development advisory board is one

establish how they will work together. It should be clear who from the company’s of the advisory board’s core roles, then a side can make contact with the advisory bonus paid for contracts won as a result of mayboard, make and senseon what to restrictissues. Toinformal ensure contact the board’s work may be appropriate. contact is kept focused and at a high level, it chief executive. with the advisory board to the chair and

[email protected] | www.odgersberndtson.co.uk 7 n Conclusion

Shorn of the formal responsibilities and With a clear mission and There is no one way in which an the right liabilities attached to a statutory board, an advisory board should work. It may meet composition, advisory board can be nimble, flexible and roleinfrequently, may be more providing akin to high-level, that of a businesslong- a board of able to focus on a narrow set of issues. term strategic insight to the board. Or its advisors can be a board to strengthen its understanding on powerful, value- An organisation may draw on an advisory development consultant, seeking to make adding asset introductions, open doors and generate in a changing any number of topics, including technology, new leads. business , demography, geopolitics, or the clear about its purpose and mission environment thinking of an individual government, to fromEither the way, outset. the advisory And the boardboard mustshould be be Anname advisory a few. board adds value by exposing

Withstructured, a clear resourced mission and and the led right accordingly. the management and main board to new thinking, thereby broadening horizons, challengingimproving understanding assumptions and of a guarding company’s businesscomposition, environment. a board of advisors can be a markets, risks and future drivers of growth, powerful, value-adding asset in a changing availableagainst groupthink. to the organisation Advisors andcan sowiden directly the networks of contacts and opportunities benefit the bottom line.

8 [email protected] | www.odgersberndtson.co.uk n About Odgers Berndtson

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